2010/09/19 by Nikolaus Rab, Rab, Nikolaus, Richard Warnung +1
Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #FOS: Economics and business #Financial Markets and Investment Strategies #Financial Risk and Volatility Modeling #Portfolio Management (q-fin.PM) #Risk Management (q-fin.RM) #q-fin.PM #q-fin.RM
paper · pdf · doi:10.48550/arxiv.1009.3638
26 pages, 3 figures, 3 tables
openalex publication_date 2010/09/19 · arxiv created 2011/11/29 · arxiv updated 2011/11/30 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
In practice daily volatility of portfolio returns is transformed to longer holding periods by multiplying by the square-root of time which assumes that returns are not serially correlated. Under this assumption this procedure of scaling can also be applied to contributions to volatility of the assets in the portfolio. Close prices are often used to calculate the profit and loss of a portfolio. Trading at exchanges located in distant time zones this can lead to significant serial cross-correlations of the closing-time returns of the assets in the portfolio. These serial correlations cause the square-root-of-time rule to fail. Moreover volatility contributions in this setting turn out to be misleading due to non-synchronous correlations. We address this issue and provide alternative procedures for scaling volatility and calculating risk contributions for arbitrary holding periods.