Volatility During the Financial Crisis Through the Lens of High Frequency Data: A Realized GARCH Approach
Denisa Banulescu-Radu Peter Reinhard Hansen
Zhuo Huang Marius Matei
We study 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 financial data to model volatility and to determine the timing within the day when the largest volatility shocks occurred. The latter helps us identify the events that may be associated with each of these shocks, and serves to illustrate the benefits of using high-frequency data. Some of the largest volatility shocks coincide, 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. Yet, the largest volatility shock was on February 27, 2007, the date when 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 high-frequency data shows that the main culprit was a computer glitch in the trading system. The days with the largest drops in volatility can in most cases be related to interventions by governments and central banks.
Keywords: Financial Crisis; Volatility; High Frequency Data; Realized GARCH.
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