Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
963300 | Journal of International Financial Markets, Institutions and Money | 2008 | 18 Pages |
Abstract
In this paper, we show that scaled conditional volatilities obtained by the square root formula applied to i.i.d residuals from a sample of Canadian stock market data for various time horizons and error distributions, typically underestimate the true conditional volatility; consistently have a higher standard deviation and exhibit non-stationary kurtosis. Furthermore, the bias produced by volatility scaling is non-stationary in mean and standard deviation and its magnitude is likely influenced by monetary policy regime shifts. Moreover, while VaR is risk-coherence for elliptical distributions, this bias remains even for this class of distributions.
Keywords
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Authors
Samir Saadi, Abdul Rahman,