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Title:Stochastic volatility driven by large shocks PDF Logo
Authors:Kapetanios, George
Tzavalis, Elias
Issue Date:2006
Series/Report no.:Working Paper, Department of Economics, Queen Mary, University of London 568
Abstract:This paper presents a new model of stochastic volatility which allows for infrequent shifts in the mean of volatility, known as structural breaks. These are endogenously driven from large innovations in stock returns arriving in the market. The model has a number of interesting properties. Among them, it can allow for shifts in volatility which are of stochastic timing and magnitude. This model can be used to distinguish permanent shifts in volatility coming from large pieces of news arriving in the market, from ordinary volatility shocks.
Subjects:Stochastic volatility, Structural breaks
JEL:C22
C15
Document Type:Working Paper
Appears in Collections:Working Paper Series, School of Economics and Finance, Queen Mary, University of London

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