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A1597
Topic: Title: On volatility persistence and structural breaks Authors:  Yuhan Zhang - University of Leicester (United Kingdom) [presenting]
Alexandra Dias - University of York (United Kingdom)
Abstract: Being one of the stylized features of financial markets, volatility persistence has been extensively studied. Recent research has conjectured that structural breaks in the volatility of financial assets could be induced by significant events, especially around a financial crisis. Moreover, not incorporating such structural breaks in GARCH type models could lead to an upward bias in volatility persistence. In order to address this problem, a modified ICSS algorithm is employed to identify the occurrence of structural breaks around the 2008 financial crisis in stock return series in the UK and China. Fifteen points are found in the return series in the UK, while five break points in China, indicating a relative stable volatility structure in the Chinese market over the sample period. Furthermore, after incorporating the detected structural breaks using dummy variables in a GARCH model, the volatility persistence of the return series drops in both stock markets, especially to a greater degree in the UK, suggesting a more severe size distortion of volatility persistence in this developed stock market than the Chinese emerging market. Observed from the data, the Chinese market experienced a more persistent volatility than the UK market, both before and after accommodating the structural breaks.