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http://hdl.handle.net/10071/9126
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Title: On the predictability of realized volatility using feasible GLS
Authors: Bentes, S.
Menezes, R.
Keywords: Feasible GLS
Forecasting
Implied volatility
Realized volatility
Issue Date: 2013
Publisher: Elsevier
Abstract: This study deals with the out-of-sample predictability of realized volatility induced by implied volatility using FGLS. The original dataset was collected from Bloomberg and includes price and implied volatility indices from the US, Hong Kong, China, South Korea and India. Prices were then transformed into realized volatility indices. The relation between realized and implied volatility is important insofar as market expectations about future turbulence may affect the investor's behavior in advance. However, there are some features of the financial data which turn problematic the choice of the OLS estimator. These features include endogeneity and persistence of the predictor, and also conditional heteroskedasticity of the predicted innovations. Consequently, OLS becomes biased and inefficient. The FGLS estimator accounts for these characteristics and, therefore, performs better than OLS-based estimators, as indicated by many of our results.
Peer reviewed: Sim
URI: https://ciencia.iscte-iul.pt/public/pub/id/22759
http://hdl.handle.net/10071/9126
ISSN: 1049-0078
Publisher version: The definitive version is available at: http://dx.doi.org/10.1016/j.asieco.2013.08.002
Appears in Collections:BRU-RI - Artigo em revista científica internacional com arbitragem científica

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