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Out of sample forecasts of quadratic variation

Listed author(s):
  • Aït-Sahalia, Yacine
  • Mancini, Loriano

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.

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File URL: http://www.sciencedirect.com/science/article/pii/S0304-4076(08)00121-8
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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 147 (2008)
Issue (Month): 1 (November)
Pages: 17-33

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Handle: RePEc:eee:econom:v:147:y:2008:i:1:p:17-33
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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