A Study on the Empirical Performance of the Volatility Estimation Models

In this paper, we examine which volatility estimation model best explains KOSPI200-realized volatility in the Korean stock market, which has both heteroscedasticity and jump risk. The sample covers from July 1, 2010 to July 31, 2014, which is a low-volatility period in Korean stock market by which time the effects of the global crisis had almost vanished. We use the intra-day return of KOSPI200, which has been measured by 5-minute intervals. This study finds GARCH-family models are efficient estimators compared to historical volatility and EWMA. Also, among the GARCH-family models, Jump-Diffusion GARCH has shown comparatively good results. Especially this study finds that VKOSPI200 is the most efficient model with the largest adj. R2 and the smallest evaluation statistics during the sample period. Meanwhile, it seems to be necessary to consider jump risk when we estimate volatility in Korean stock market.