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.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 457-477 |
| Number of pages | 21 |
| Journal | Journal of Empirical Finance |
| Volume | 6 |
| Issue number | 5 |
| DOIs | |
| State | Published - Dec 1999 |
Funding
This work was supported by a grant from the NSF to the NBER. We are grateful to Olsen and Associates for making the intradaily exchange rate quotations available. We also thank seminar participants at Stanford University, the High Frequency Data in Finance-II conference in Zürich, Switzerland, and the Isaac Newton Institute Workshop on Econometrics and Financial Time Series in Cambridge, UK, for helpful comments.
Keywords
- C15
- C22
- Financial market volatility
- Forecast horizon
- G15
- Integrated volatility
ASJC Scopus subject areas
- Finance
- Economics and Econometrics