How Crashes Develop: Intradaily Volatility and Crash Evolution / David S. Bates.

Format:

Book

Author/Creator:

Bates, David S.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22028.

NBER working paper series no. w22028

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

How Crashes Develop

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

This paper explores whether affine models with volatility jumps estimated on intradaily S&P 500 futures data over 1983-2008 can capture major daily outliers such as the 1987 stock market crash. I find that intradaily jumps in futures prices are typically small, and that self-exciting but short-lived volatility spikes capture intradaily and daily returns better. Multifactor models of the evolution of diffusive variance and jump intensities improve fits substantially, including out-of-sample over 2009-13. The models capture reasonably well the conditional distributions of daily returns and of realized variance outliers, but underpredict realized variance inliers.

Notes:

Print version record

February 2016.