Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JPM
    • Awards
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

User menu

  • Sample our Content
  • Request a Demo
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Portfolio Management
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Request a Demo
  • Log in
The Journal of Portfolio Management

The Journal of Portfolio Management

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JPM
    • Awards
    • Editorial Board
    • Published Ahead of Print (PAP)
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

Volatility Estimated Based on the Holding-Period Return versus the Logarithmic Return: Their Difference Can Make a Difference

Xiang Gao, Kees G. Koedijk and Zhan Wang
The Journal of Portfolio Management September 2020, 46 (8) 108-119; DOI: https://doi.org/10.3905/jpm.2020.1.173
Xiang Gao
is an associate professor in the Research Center of Finance at the Shanghai Business School in Shanghai, China
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
Kees G. Koedijk
is a professor of finance at Tilburg University in Tilburg, the Netherlands; and CEPR in London, U.K
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
Zhan Wang
is an assistant professor in the Research Center of Finance at the Shanghai Business School in Shanghai, China
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.

Don’t have access? Click here to request a demo 
Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
EMEA: +44 0207 139 1600

Abstract

Estimation of true volatility is a crucial part of equity investment, and there are many strategies for realizing this objective (e.g., the Parkinson realized volatility, the GARCH projected volatility, and stochastic implied volatility). Instead of treating volatility estimates as alternatives to one another, a recent series of studies has emphasized the return prediction performances of their paired differences, such as the variance risk premium, which subtracts the implied variance from the realized variance under a nonparametric framework. This article proposes a novel method of differencing variances that are computed on the basis of the holding-period return versus the logarithmic return. Via this approach, the authors provide a satisfactory substitute for the variance risk premium in cases in which its requirements for intraday and options data are not satisfied. They argue that the volatility differences can capture the information contained in logarithmic returns that involve continuous transactions. This argument is supported by follow-up empirical results—the proxy is demonstrated to be able to foreshadow the next-month market return and to perform well in adjusting holdings in long–short portfolio construction strategies.

TOPICS: Volatility measures, exchanges/markets/clearinghouses, risk management

Key Findings

  • • The authors build a variance difference measure that is based on the holding-period versus logarithmic return for capturing information obtained from continuous trading activities.

  • • This measure retains the return predictability of differencing volatility estimates, thereby providing a satisfactory alternative to the variance risk premium when its stringent data requirements cannot be satisfied.

  • • The long–short portfolio strategies that are developed according to their variance difference are shown to outperform the market index, especially during market downtrend periods.

  • © 2020 Pageant Media Ltd
View Full Text

Don’t have access? Click here to request a demo

Alternatively, Call a member of the team to discuss membership options

US and Overseas: +1 646-931-9045

UK: 0207 139 1600

Log in using your username and password

Forgot your user name or password?
PreviousNext
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Portfolio Management: 46 (8)
The Journal of Portfolio Management
Vol. 46, Issue 8
September 2020
  • Table of Contents
  • Index by author
  • Complete Issue (PDF)
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Portfolio Management.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Volatility Estimated Based on the Holding-Period Return versus the Logarithmic Return: Their Difference Can Make a Difference
(Your Name) has sent you a message from The Journal of Portfolio Management
(Your Name) thought you would like to see the The Journal of Portfolio Management web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Volatility Estimated Based on the Holding-Period Return versus the Logarithmic Return: Their Difference Can Make a Difference
Xiang Gao, Kees G. Koedijk, Zhan Wang
The Journal of Portfolio Management Aug 2020, 46 (8) 108-119; DOI: 10.3905/jpm.2020.1.173

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Volatility Estimated Based on the Holding-Period Return versus the Logarithmic Return: Their Difference Can Make a Difference
Xiang Gao, Kees G. Koedijk, Zhan Wang
The Journal of Portfolio Management Aug 2020, 46 (8) 108-119; DOI: 10.3905/jpm.2020.1.173
del.icio.us logo Digg logo Reddit logo Twitter logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • MOTIVATION
    • THEORETICAL ISSUES
    • EMPIRICAL ANALYSIS
    • CONCLUSIONS
    • ADDITIONAL READING
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • Turning Tail Risks into Tailwinds
  • Google Scholar
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

MORE FROM PMR

  • News
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Sign In
  • Update your profile
  • Give us your feedback

© 2022 Pageant Media Ltd | All Rights Reserved | ISSN: 0095-4918 | E-ISSN: 2168-8656

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies