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Forecasting Financial Market Volatility: Sampling Frequency vis-, Journal of Empirical Finance

Abstract

This paper explores the return volatility predictability inherent in high-frequency speculative returns. Our analysis focuses on a refinement of the more traditional volatility measures, the integrated volatility, which links the notion of volatility more directly to the return variance over the relevant horizon. In our empirical analysis of the foreign exchange market the integrated volatility is conveniently approximated by a cumulative sum of the squared intraday returns. Forecast horizons ranging from short intraday to 1-month intervals are investigated. We document that standard volatility models generally provide good forecasts of this economically relevant volatility measure. Moreover, the use of high-frequency returns significantly improves the longer run interdaily volatility forecasts, both in theory and practice. The results are thus directly relevant for general research methodology as well as industry applications.

Type

Article

Author(s)

Torben Andersen, Tim Bollerslev, Steve Lange

Date Published

1999

Citations

Andersen, Torben, Tim Bollerslev, and Steve Lange. 1999. Forecasting Financial Market Volatility: Sampling Frequency vis-. Journal of Empirical Finance. 6(5): 457-477.

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