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Out of sample forecasts of quadratic variation


Ait-Sahalia, Yacine; Mancini, Loriano (2008). Out of sample forecasts of quadratic variation. Journal of Econometrics, 147(1):17-33.

Abstract

We compare the forecasts of Quadratic Variation given by the Realized Volatility (RV) and the Two Scales Realized Volatility (TSRV) computed from high frequency data in the presence of market microstructure noise, under several different dynamics for the volatility process and assumptions on the noise. We show that TSRV largely outperforms RV, whether looking at bias, variance, RMSE or out-of-sample forecasting ability. An empirical application to all DJIA stocks confirms the simulation results.

Abstract

We compare the forecasts of Quadratic Variation given by the Realized Volatility (RV) and the Two Scales Realized Volatility (TSRV) computed from high frequency data in the presence of market microstructure noise, under several different dynamics for the volatility process and assumptions on the noise. We show that TSRV largely outperforms RV, whether looking at bias, variance, RMSE or out-of-sample forecasting ability. An empirical application to all DJIA stocks confirms the simulation results.

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Additional indexing

Item Type:Journal Article, refereed, further contribution
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:November 2008
Deposited On:23 Jan 2009 09:37
Last Modified:06 Dec 2017 17:04
Publisher:Elsevier
ISSN:0304-4076
Publisher DOI:https://doi.org/10.1016/j.jeconom.2008.09.015

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