Abstract
Most procedures for modeling and forecasting financial asset return volatilities rely on restrictive and complicated parametric GARCH or stochastic volatility models. The method of realized volatility constructed from high-frequency intraday returns is an alternative choice for volatility measurement. In this paper we make an empirical analysis on Chinese stock index data by using the method of nonparametric realized volatility. We find that the realized volatility can describe the Chinese stock index volatility very well. The original Chinese stock index return series show obvious leptokurtic, fat-tailed relative to the Gaussian distribution.We show that the return series standardized instead by the realized volatility are very nearly Gaussian distribution, and we find that the four minutes is a better choice as the best time interval to describe the volatility of Chinese stock market. We also make a contrast with the popular method of GARCH model, but the return series standardized instead by GARCH model don’t accord with Gaussian distribution. The result shows that the realized volatility can describe the dynamic behaviors of Chinese stock market well. In a way, it indicates that the Chinese stock market is effective.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Bollerslev, T., Chou, R.J., Kroner, K.F.: ARCH Modeling in Finance: A Review of the Theory and Empirical Evidence. Journal of Econometrics 52, 5–59 (1992)
Engle, R.F., Gonzalez-Rivera, G.: Semiparametric ARCH Models. Journal of Business and Economic Statistics 9(4), 345–359 (1991)
Chen, K., Jayprakash, B.Y.: Conditional Probability as a Measure of Volatility Clustering in Financial Time Series. Europhysics Letters 18, 1–6 (2005)
Anderson, T.G., Bollerslev, T.: Exchange rate returns standardized by realized volatility are nearly Gaussian. Multinational Finance Journal 4, 159–179 (2000)
Kenneth, F., Schwert, G.W., Stambaugh, R.: Excepted Stock Returns and Volatility. Journal of Financial Economics 19, 3–30 (1987)
Anderson, T.G., Bollerslev, T.: Answering the critics: Yes, ARCH models do provide good vohtility forecasts. National Bureau of Economic Research (NBER) Working paper, No. 6023 (1997)
Hsieh, D.A.: Chaos and nonlinear dynamics: application to financial markets. The Journal of Finance 46, 1839–1877 (1991)
Taylor, S.J., Xu, X.: The incremental volatility information in one million foreign exchange quotations. Journal of Empirical Finance 4, 317–340 (1997)
Andersen, T.G., Bollerslev, T., Diebold, F.X.: Parametric and nonparametric volatility measurement. In: Hansen, L.P., AytSahalia, Y. (eds.) Handbook of Financial Econometrics. North Holland, Amsterdam (2002) (forthcoming)
Bollerslev, T., Engle, R., Nelson, D.: ARCH Models. In: Handbook of Econometrics, vol. IV, pp. 2959–3038. North-Holland, Amsterdam (1994)
Bera, A.K., Higgings, M.L.: A Survey of ARCH Models: Properties, Estimation and Testing. Journal of Economic Surveys 7, 305–366 (1993)
Diebold, F.X., Lopez, J.A.: Macroeconomics: Developments, Tensions and Prospects. Blackwell, Oxford (1995)
McAleer, M., Oxley, L.: Contributions to Financial Econometrics. Blackwell, Oxford (2003)
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2009 ICST Institute for Computer Science, Social Informatics and Telecommunications Engineering
About this paper
Cite this paper
Zhang, X., Wang, Y., Li, H. (2009). The Contrast of Parametric and Nonparametric Volatility Measurement Based on Chinese Stock Market. In: Zhou, J. (eds) Complex Sciences. Complex 2009. Lecture Notes of the Institute for Computer Sciences, Social Informatics and Telecommunications Engineering, vol 4. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-02466-5_60
Download citation
DOI: https://doi.org/10.1007/978-3-642-02466-5_60
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-02465-8
Online ISBN: 978-3-642-02466-5
eBook Packages: Computer ScienceComputer Science (R0)