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Realized Volatility Forecasting: Robustness to Measurement Errors

Fabrizio Cipollini (), Giampiero M. Gallo () and Edoardo Otranto ()
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Fabrizio Cipollini: Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti", Università di Firenze, http://www.disia.unifi.it
Giampiero M. Gallo: Corte dei Conti and NYU in Florence, Italy
Edoardo Otranto: Università di Messina, Italy

No 2019_04, Econometrics Working Papers Archive from Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti"

Abstract: In this paper, we reconsider the issue of measurement errors affecting the estimates of a dynamic model for the conditional expectation of realized variance arguing that heteroskedasticity of such errors may be adequately represented with a multiplicative error model. Empirically we show that the significance of quarticity/quadratic terms capturing attenuation bias is very important within an HAR model, but is greatly diminished within an AMEM, and more so when regime specific dynamics account for a faster mean reversion when volatility is high. Model Confidence Sets confirm such robustness both in– and out–of–sample.

Keywords: Realized volatility; Forecasting; Measurement errors; HAR; AMEM; Markov switching; Volatility of volatility (search for similar items in EconPapers)
JEL-codes: C22 C51 C53 C58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-ore and nep-rmg
Date: 2019-07
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