Assessing Day-to-day Volatility: Does the Trading Time Matter? (Avaliando a Volatilidade Díaria dos Ativos: A Hora da Negociação Importa?)

The aim of this study is to examine whether investors have distinct perceptions about the daily volatility of an asset. In order to capture the uncertainty faced by these investors, we define the volatility perceived by investors as the distribution of standard deviations of daily returns calculated...

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Bibliographic Details
Published in:Revista Brasileira de Finanças 2014-03, Vol.12 (1), p.41-66
Main Authors: Vicente, José Valentim Machado, Araújo, Gustavo Silva, de Castro, Paula Baião Fisher, Tavares, Felipe Noronha
Format: Article
Language:English
Subjects:
Hedge funds
Investments
Perceptions
Prices
Rates of return
risk
Standard deviation
Stock exchanges
Studies
uncertainty
Volatility
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Summary:The aim of this study is to examine whether investors have distinct perceptions about the daily volatility of an asset. In order to capture the uncertainty faced by these investors, we define the volatility perceived by investors as the distribution of standard deviations of daily returns calculated from intraday prices collected ran- domly. We find that this distribution has a high degree of dispersion. This means that different investors may not share the same opinion regarding the variability of returns of the same asset. Moreover, the close-to-close volatility is often less than the median of the volatility distribution perceived by investors while the open-to-open volatility is greater than that statistic. From a practical point of view, our results indicate that volatilities estimated using traditional samples of daily returns (i.e., close-to-close and open-to-open returns) may not do a good job when used as inputs in financial models since they may not properly capture the risk investors are exposed.
ISSN:1679-0731
1984-5146