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Out of sample forecasts of quadratic variation

Yacine Ait-Sahalia and Loriano Mancini

Journal of Econometrics, 2008, vol. 147, issue 1, 17-33

Abstract: We compare the forecasts of Quadratic Variation given by the Realized Volatility (RV) and the Two Scales Realized Volatility (TSRV)Â 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.

Keywords: Market; microstructure; noise; High; frequency; data; Measurement; error; Realized; volatility; Two; scales; realized; volatility; Out; of; sample; forecasts (search for similar items in EconPapers)
Date: 2008
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Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

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Handle: RePEc:eee:econom:v:147:y:2008:i:1:p:17-33