Measuring volatility persistence in the presence of sudden changes in the variance of Canadian stock returns

Farooq Malik, Bradley T. Ewing, James E. Payne

Research output: Contribution to journalArticlepeer-review

32 Scopus citations

Abstract

It is well known that volatility persistence is overestimated if regime shifts are not accounted for in the standard GARCH model. This research detects time periods of sudden changes in variance using the iterated cumulated sums of squares (ICSS) algorithm. Using weekly data for the Canadian stock market indicates that after accounting for endogenously determined volatility shifts in the GARCH model, the estimated persistence in volatility is significantly reduced. This casts some doubt on previous findings that volatility in financial markets is highly persistent. The findings have important implications for investors and financial market participants.

Original languageEnglish
Pages (from-to)1037-1056
Number of pages20
JournalCanadian Journal of Economics
Volume38
Issue number3
DOIs
StatePublished - Aug 2005

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