@article{24e995f3d80241fa84708586925bbf46,
title = "Out of sample forecasts of quadratic variation",
abstract = "We compare the forecasts of Quadratic Variation given by the Realized Volatility (RV) and the Two Scales Realized Volatility (TSRV) 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.",
keywords = "High frequency data, Market microstructure noise, Measurement error, Out of sample forecasts, Realized volatility, Two scales realized volatility",
author = "Yacine A{\"i}t-Sahalia and Loriano Mancini",
note = "Funding Information: Financial support from the NSF under grants SES-0350772 and DMS-0532370 (A{\"i}t-Sahalia) and from the University Research Priority Program “Finance and Financial Markets” University of Zurich and the NCCR-FinRisk Swiss National Science Foundation (Mancini) is gratefully acknowledged. For helpful comments, we thank two anonymous referees, Patrick Cheridito, Fulvio Corsi and seminar participants at the conferences “Risk Measures & Risk Management for High-Frequency Data”, EURANDOM, 2006, “Microstructure of Financial and Money Markets”, CREST, 2006, and the 33rd Annual Meeting of the European Finance Association, EFA, 2006. This research was undertaken while Mancini visited the Department of Operations Research and Financial Engineering at Princeton University. ",
year = "2008",
month = nov,
doi = "10.1016/j.jeconom.2008.09.015",
language = "English (US)",
volume = "147",
pages = "17--33",
journal = "Journal of Econometrics",
issn = "0304-4076",
publisher = "Elsevier B.V.",
number = "1",
}