Forecasting financial market volatility: Sample frequency vis-à-vis forecast horizon

Published

Journal Article

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.

Full Text

Duke Authors

Cited Authors

  • Andersen, TG; Bollerslev, T; Lange, S

Published Date

  • January 1, 1999

Published In

Volume / Issue

  • 6 / 5

Start / End Page

  • 457 - 477

International Standard Serial Number (ISSN)

  • 0927-5398

Digital Object Identifier (DOI)

  • 10.1016/S0927-5398(99)00013-4

Citation Source

  • Scopus