A new generalized volatility proxy via the stochastic volatility model. Issue 23 (15th May 2017)

• Record Type: Journal Article
• Authors: Kim, Jong-Min; Jung, Hojin; Qin, Li
• Is Part Of: Applied economics. Volume 49:Issue 23(2017)
• Page Start: 2259
• Page End: 2268
• Publication Date: 2017-05-15
• Subjects: Volatility -- stochastic volatility -- relative bias -- mean square error; C32 -- C52; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2016.1237751
• Languages: English
• ISSNs: 0003-6846

Abstract

ABSTRACT: This article proposes power transformation of absolute returns as a new proxy of latent volatility in the stochastic model. We generalize absolute returns as a proxy for volatility in that we place no restriction on the power of absolute returns. An empirical investigation on the bias, mean square error and relative bias is carried out for the proposed proxy. Simulation results show that the new estimator exhibiting negligible bias appears to be more efficient than the unbiased estimator with high variance.