High- and Low-Frequency Exchange Rate Volatility Dynamics: Range-Based Estimation of Stochastic Volatility Models

Sassan Alizadeh, Michael W. Brandt and Francis Diebold

No 8162, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose using the price range in the estimation of stochastic volatility models. We show theoretically, numerically, and empirically that the range is not only a highly efficient volatility proxy, but also that it is approximately Gaussian and robust to microstructure noise. The good properties of the range imply that range-based Gaussian quasi-maximum likelihood estimation produces simple and highly efficient estimates of stochastic volatility models and extractions of latent volatility series. We use our method to examine the dynamics of daily exchange rate volatility and discover that traditional one-factor models are inadequate for describing simultaneously the high- and low-frequency dynamics of volatility. Instead, the evidence points strongly toward two-factor models with one highly persistent factor and one quickly mean-reverting factor.

JEL-codes: F3 G1 (search for similar items in EconPapers)
Date: 2001-03
New Economics Papers: this item is included in nep-ets, nep-fin, nep-fmk and nep-ifn
Note: AP
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Published as Alizadeh, Sassan, Michael W. Brandt and Francis X. Diebold. "Range-Based Estimation Of Stochastic Volatility Models," Journal of Finance, 2002, v57(3,Jun), 1047-1091.

Downloads: (external link)
http://www.nber.org/papers/w8162.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:8162

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w8162

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().