Estimating Financial Volatility with High-Frequency Returns

Research Article

The primary value of a time series model lies in its ability to provide reliable approximations of the modelled variable, both in-sample (where data are used to estimate model parameters) and out-of-sample (where the model is updated with new information and produces forecasts). In this paper, an overview of the various models in the GARCH family is followed by their application in estimating the daily volatility of Citigroup Inc., a major player in the US. sub-prime mortgage crisis. Fitting these estimates to the ex-post realized volatility measure constructed from high-frequency returns provides superior goodness-of- t than tting them to the [...]

Illusory Nature of Pricing of Illiquidity Effect: The Test Case of Australian Stock Market

Research Article

Positive illiquidity premium is documented to be linked with the illiquidity effect across global markets. This evidence is generally suggested through some asset pricing model, such as Acharya and Pedersen (2005) or others. Our study shows that the success of any such model in terms of magnitude of predicted risk premium is linked with a measure of illiquidity used in the study. The main implication of this evidence is that the variety of illiquidity related risk premiums can be reported for the same market, or for the number of markets. To elaborate this point, the test case of Australian stock [...]