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    Rights statement: This is the peer reviewed version of the following article: Li, Z, Izzeldin, M, Yao, X. Return predictability of variance differences: A fractionally cointegrated approach. Journal of Futures Markets 2020; 40: 1072– 1089. https://doi.org/10.1002/fut.22110 which has been published in final form at https://onlinelibrary.wiley.com/doi/abs/10.1002/fut.22110 This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.

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Return Predictability of Variance Differences: a fractionally co-integrated approach

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Return Predictability of Variance Differences: a fractionally co-integrated approach. / Li, Zhenxiong ; Izzeldin, Marwan; Yao, Xingzhi.
In: The Journal of Futures Markets , Vol. 40, No. 7, 01.07.2020, p. 1072-1089.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

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Li Z, Izzeldin M, Yao X. Return Predictability of Variance Differences: a fractionally co-integrated approach. The Journal of Futures Markets . 2020 Jul 1;40(7):1072-1089. doi: 10.1002/fut.22110

Author

Li, Zhenxiong ; Izzeldin, Marwan ; Yao, Xingzhi. / Return Predictability of Variance Differences : a fractionally co-integrated approach. In: The Journal of Futures Markets . 2020 ; Vol. 40, No. 7. pp. 1072-1089.

Bibtex

@article{763c2088f62e42c38d733be1d191f3f6,
title = "Return Predictability of Variance Differences: a fractionally co-integrated approach",
abstract = "This paper examines the fractional cointegration between downside (upside) components of realized and implied variances. A positive association is found between the strength of their cofractional relation and the return predictability of their differences. That association is established via the common long‐memory component of the variances that are fractionally cointegrated, which represents the volatility‐of‐volatility factor that determines the variance premium. Our results indicate that market fears play a critical role not only in driving the long‐run equilibrium relationship between implied‐realized variances but also in understanding the return predictability. A simulation study further verifies these claims.",
author = "Zhenxiong Li and Marwan Izzeldin and Xingzhi Yao",
note = "This is the peer reviewed version of the following article: Li, Z, Izzeldin, M, Yao, X. Return predictability of variance differences: A fractionally cointegrated approach. Journal of Futures Markets 2020; 40: 1072– 1089. https://doi.org/10.1002/fut.22110 which has been published in final form at https://onlinelibrary.wiley.com/doi/abs/10.1002/fut.22110 This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving. ",
year = "2020",
month = jul,
day = "1",
doi = "10.1002/fut.22110",
language = "English",
volume = "40",
pages = "1072--1089",
journal = "The Journal of Futures Markets ",
number = "7",

}

RIS

TY - JOUR

T1 - Return Predictability of Variance Differences

T2 - a fractionally co-integrated approach

AU - Li, Zhenxiong

AU - Izzeldin, Marwan

AU - Yao, Xingzhi

N1 - This is the peer reviewed version of the following article: Li, Z, Izzeldin, M, Yao, X. Return predictability of variance differences: A fractionally cointegrated approach. Journal of Futures Markets 2020; 40: 1072– 1089. https://doi.org/10.1002/fut.22110 which has been published in final form at https://onlinelibrary.wiley.com/doi/abs/10.1002/fut.22110 This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.

PY - 2020/7/1

Y1 - 2020/7/1

N2 - This paper examines the fractional cointegration between downside (upside) components of realized and implied variances. A positive association is found between the strength of their cofractional relation and the return predictability of their differences. That association is established via the common long‐memory component of the variances that are fractionally cointegrated, which represents the volatility‐of‐volatility factor that determines the variance premium. Our results indicate that market fears play a critical role not only in driving the long‐run equilibrium relationship between implied‐realized variances but also in understanding the return predictability. A simulation study further verifies these claims.

AB - This paper examines the fractional cointegration between downside (upside) components of realized and implied variances. A positive association is found between the strength of their cofractional relation and the return predictability of their differences. That association is established via the common long‐memory component of the variances that are fractionally cointegrated, which represents the volatility‐of‐volatility factor that determines the variance premium. Our results indicate that market fears play a critical role not only in driving the long‐run equilibrium relationship between implied‐realized variances but also in understanding the return predictability. A simulation study further verifies these claims.

U2 - 10.1002/fut.22110

DO - 10.1002/fut.22110

M3 - Journal article

VL - 40

SP - 1072

EP - 1089

JO - The Journal of Futures Markets

JF - The Journal of Futures Markets

IS - 7

ER -