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Properties of range-based volatility estimators

Molnàr, Peter
Journal article, Peer reviewed
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Range based volatility estimators.pdf (356.4Kb)
URI
http://hdl.handle.net/11250/276851
Date
2012
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  • Articles (FOR) [100]
Original version
International Review of Financial Analysis 2012, 23:20-29   10.1016/j.irfa.2011.06.012
Abstract
Volatility is not directly observable and must be estimated. Estimator based on

daily close data is imprecise. Range-based volatility estimators provide significantly more precision, but still remain noisy volatility estimates, something that

is sometimes forgotten when these estimators are used in further calculations.

First, we analyze properties of these estimators and find that the best estimator

is the Garman-Klass (1980) estimator. Second, we correct some mistakes

in existing literature. Third, the use of the Garman-Klass estimator allows us to

obtain an interesting result: returns normalized by their standard deviations are

approximately normally distributed. This result, which is in line with results

obtained from high frequency data, but has never previously been recognized in

low frequency (daily) data, is important for building simpler and more precise

volatility models.
Description
This is a pre-copyedited, author-produced PDF of an article accepted for publication in International Review of Financial Analysis, following peer review. The final publication International Review of Financial Analysis 2012, 23:20-29 is available at Elsevier via DOI: 10.1016/j.irfa.2011.06.012 .
Publisher
Elsevier Ltd.
Journal
International Review of Financial Analysis

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