Abstract: Constructed from high-frequency data, realized volatility (RV) provides an efficient estimate of the unobserved volatility of financial markets. This paper uses a Bayesian approach to investigate the evidence for structural breaks in reduced form time-series models of RV. We focus on the popular heterogeneous autoregressive (HAR) models of the logarithm of realized volatility. Using Monte Carlo simulations we demonstrate that our estimation
approach is effective in identifying and dating structural breaks. Applied to daily S&P 500 data from 1993-2004, we find strong evidence of a structural break in early 1997. The main
effect of the break is a reduction in the variance of
log-volatility. The evidence of a break is robust to
different models including a GARCH specification for the
conditional variance of log(RV).
Keywords: realized volatility, change point, marginal likelihood, Gibbs sampling, GARCH
JEL Classification: C22; C11; G10