To calculate volatility, which price in FTSE table is used? When do we use close price for calculating volatility? Do we use adjclose (adjusted close price) for calculating volatility as well? when and how do we use adjclose price?



The adjusted close price accounts for corporate actions such as stock splits and dividends, distributions and rights offerings (here)

Stock splits in particular would give the illusion of significant volatility and impact your estimates with outliers that are not due to market activity. Therefore, I would suggest using the adjusted close prices.

That said, and depending of what exactly you are trying to achieve, you may still need to treat cash dividends and rights offerings with special care.

  • $\begingroup$ To calculate the volatility of FTSE, which price has been used? open, close, low, high or adjusted close? In the papers I read like banque-france.fr/fileadmin/user_upload/banque_de_france/…, researchers discuss about the bias of using each price but they do not discuss about "adjusted close price", why? $\endgroup$ – user7879 Apr 24 '14 at 9:55
  • $\begingroup$ I will try to have a look the the banque_de_france paper. This book by Sinclair link gives a good overview of the different methodologies to calculate volatility. $\endgroup$ – pincopallino Apr 24 '14 at 10:06
  • $\begingroup$ The book Trading volatility by Sinclair, compares True Volatility by Standard deviation and Approx Standard deviation in page 21. What author here means by "True volatility"? how it is calculated? $\endgroup$ – user7985 May 5 '14 at 11:05

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