Good Volatility, Bad Volatility: Signed Jumps and the Persistence of Volatility

-

Econometrics Seminar
University of Pennsylvania

3718 Locust Walk
410 McNeil

Philadelphia, PA

United States

Joint with: Andrew J. Patton

This paper examines the role that negative returns and their associated volatility play in determining future volatility. Measures of quadratic variation are decomposed into signed components which are further decomposed into signed-jump and continuous components using a simple transformation. Using data for both the S&P 500 SPDR and the individual components of the S&P 100, we find that jumps play an important role in future volatility. Moveover, we document that the effect of jumps is highly asymmetric where negative jumps lead to long lasting { almost permanent { increases in volatility while positive jumps lead to long term lower volatility.

For more information, contact Frank Schorfheide.

Kevin Sheppard

Oxford University

Download Paper