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Predictive ability of low-frequency volatility measures: Evidence from the Hong Kong stock markets

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  • Gan, Christopher
  • Nartea, Gilbert V.
  • Wu, Ji (George)

Abstract

We employ low-frequency data to estimate historical volatility measures for Hong Kong stocks and examine the relationship between these measures and the one-month ahead stock return over thirty-five years. First, we employ a stock's past three-year weekly return to compute idiosyncratic volatility. Second, we use a stock's past three-year maximum weekly return to create a MAX measure. We find that both IVOL and MAX are significant and negatively related to the one-month ahead stock return. Both effects co-exist in the Hong Kong stock markets and are robust after controlling for the financial crisis, January effect, and tiny stocks.

Suggested Citation

  • Gan, Christopher & Nartea, Gilbert V. & Wu, Ji (George), 2018. "Predictive ability of low-frequency volatility measures: Evidence from the Hong Kong stock markets," Finance Research Letters, Elsevier, vol. 26(C), pages 40-46.
    • Handle: RePEc:eee:finlet:v:26:y:2018:i:c:p:40-46
    DOI: 10.1016/j.frl.2017.11.007
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    More about this item

    Keywords

    Total volatility; Idiosyncratic volatility; Maximum weekly returns; Asset pricing; Weekly data; Hong Kong stock markets;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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