Non-trading day effects in asymmetric conditional and stochastic volatility models

It is well known that non-trading days (or holidays) can have significant effects on the returns in financial series. In this paper, we analyze three models of non-trading day effects in stochastic volatility models with leverage effects, namely (i) the approach based on the dummy variable in conditional volatility models; (ii) the approach based on a discrete time approximation of a continuous time stochastic volatility model and (iii) the twin non-trading day stochastic volatility model which nests the above two models. The three models are also estimated and tested within the asymmetric and exponential conditional volatility frameworks. All the models within the stochastic, asymmetric conditional and exponential conditional volatility frameworks are estimated and compared using a selection of financial returns series.