Economic Gains of Realized Volatility in the Brazilian Stock Market (Ganhos Econômicos da Volatilidade Realizada no Mercado Brasileiro de Ações)

This paper evaluates the economic gains associated with following a volatility timing strategy based on a multivariate model of realized volatility. To study this issue, we build a high frequency database with the most actively traded Brazilian stocks. Comparing with traditional volatility methods,...

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Bibliographic Details
Published in:Revista Brasileira de Finanças 2014-09, Vol.12 (3), p.319
Main Authors: Garcia, Márcio Gomes Pinto, Medeiros, Marcelo Cunha, de Luna, Francisco Eduardo, Santos, Almeida
Format: Article
Language:eng ; por
Subjects:
Forecasting
Realized gains & losses
Securities markets
Stock exchanges
Studies
Volatility
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Summary:This paper evaluates the economic gains associated with following a volatility timing strategy based on a multivariate model of realized volatility. To study this issue, we build a high frequency database with the most actively traded Brazilian stocks. Comparing with traditional volatility methods, we find that, when estimation risk is controlled, economic gains associated with realized measures perform well and increase proportionally to the target return. When expected returns are bootstrapped, however, performance fees are not significant, which is an indication that economic gains of realized volatility are offset by estimation risk.
ISSN:1679-0731
1984-5146