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Barndorff-Nielsen, O.E. and Shephard, N. (2002) Estimating Quadratic Variation Using Realized Variance. Journal of Applied Econometrics, 17, 457-477.
ABSTRACT: Considering the overnight effect on the stock market, we construct a daily volatility measure that is formed by a linear combination of the three components, namely overnight volatility, morning realized volatility and afternoon realized volatility, and obtain the optimal solution in theory. An empirical work is performed for studying the daily volatility structure of Shanghai stock index and Shenzhen stock index in China’s stock market by using our daily volatility measure. The empirical results show that, the daily volatility measure considering the impact of overnight variance and time segment performs better than original volatility measure.