Volatiliy During the Financial Crisis Through the Lens of High-frequency Data: A Realized GARCH Approach

Mardi | 2014-07-01
Salle des thèses

Denisa BANULESCU-RADU – Peter Reinhard HANSEN – Zhuo HUANG – Marius² MATEI

In this paper we study the financial volatility during the global financial crisis and use the largest volatility shocks to identify major events during the crisis. Our analysis makes extensive use of high-frequency (HF) financial data for the modelling of volatility and, importantly, for determining the timing within the day when the largest volatility shocks occurred. The latter helps us identify the event(s) that can be associated with each of these shocks. The higher volatility during the period 2007 to 2009 coincides, not surprisingly, with the bankruptcy of Lehman Brothers on September 15, 2008 and Congress’s failure to pass the Emergency Economic Stabilization Act on September 29, 2008. The day with the largest volatility shock was February 27, 2007 – a date where Freddie Mac announced a stricter policy for underwriting subprime loans and a date that was marked by a crash on the Chinese stock market. However, the intraday HF data shows that the main culprit for this shock was a computer glitch in the trading system. On the other hand, the days with the largest drops in volatility can in most cases be related to interventions by governments and central banks.