Converting 1-Day Volatility to h-Day Volatitlity: Scaling by Root-h is Worse Than You Think

Francis Diebold (), Andrew Hickman, Atsushi Inoue and Til Schuermann ()

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: We show that the common practice of converting 1-day volatility estimates to h-day estimates by scaling by the sqaure root of h is inappropriate and produces overestimates of the variability of long-horizon volatility. We conclude that volatility models are best tailored to tasks: if interest centers on long-horizon volatility, then a long-horizon volatility model should be used. Economic considerations, however, confound even that prescription and point to important directions for future research.

Date: 1997-07
View list of references View citations in EconPapers

Downloads: (external link)
http://fic.wharton.upenn.edu/fic/papers/97/9734.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:wop:pennin:97-34

Access Statistics for this paper

More papers in Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania
Contact information at EDIRC.
Series data maintained by Thomas Krichel ().