Publication: The effect of realised volatility on stock returns risk estimates
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2007-09
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Abstract
In this paper, we estimate minimum capital risk requirements for short, long positions and three
investment horizons, using the traditional GARCH model and two other GARCH-type models
that incorporate the possibility of asymmetric responses of volatility to price changes; and, most
importantly, we analyse the models performance when realised volatility is included as an
explanatory variable into the models' variance equations. The results suggest that the inclusion of
realised volatility improves the models forecastability and their capacity to calculate accurate
measures of minimum capital risk requirements.
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Asymmetry, High-Frequency data, Minimum capital risk requirements, Realised volatility