Does realized volatility provide additional information?

摘要

Purpose - The purpose of this paper is to examine whether realized volatility can provide additional information on the volatility process to the GARCH and EGARCH model, based on the data of Chinese stock market. Design/methodology/approach - The realized volatility is defined as the squared overnight return plus the close to open squared return of the period between the morning and afternoon session, to plus the sum of the squared f-minute returns between the trading hours during the relevant trading day. The methodology is a GARCH (EGARCH) model with added explanation variables in the variance equation. The estimation methodology is exact maximum likelihood estimation, using the BHHH algorithms for optimization. Findings - There are some stocks for which realized volatility measures add information in the volatility process, but there are still quite a number of stocks for which they do not contain any additional information. The 30 minutes realized volatility measures outperform measures constructed on other time intervals. The firm size, turnover rate, and amplitude also partially explain the difference in realized volatility's explanatory power across firms. Research limitations/implications - When analyzing the factors determining the role of realized volatility, as the difficulty of getting the data, ownership structure and ultimately ownerships are not taken into account, except for the turnover ratio, amplitude and size. Originality/value - This study extends firstly this line of inquiry of realized volatility into the emerging Chinese stock market. Due to the unique institutional setting in China, the results of this study have played an important role on pricing warrant for domestic investors in the Chinese market.