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Asymptotic inference about predictive accuracy using high frequency data

Jia Li and Andrew J. Patton

Journal of Econometrics, 2018, vol. 203, issue 2, 223-240

Abstract: This paper provides a general framework that enables many existing inference methods for predictive accuracy to be used in applications that involve forecasts of latent target variables. Such applications include the forecasting of volatility, correlation, beta, quadratic variation, jump variation, and other functionals of an underlying continuous-time process. We provide primitive conditions under which a “negligibility” result holds, and thus the asymptotic size of standard predictive accuracy tests, implemented using a high-frequency proxy for the latent variable, is controlled. An extensive simulation study verifies that the asymptotic results apply in a range of empirically relevant applications, and an empirical application to correlation forecasting is presented.

Keywords: Forecast evaluation; Realized variance; Volatility; Jumps; Semimartingale (search for similar items in EconPapers)
JEL-codes: C53 C22 C58 C52 C32 (search for similar items in EconPapers)
Date: 2018
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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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