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Realized volatility forecasting and market microstructure noise

Publication ,  Journal Article
Andersen, TG; Bollerslev, T; Meddahi, N
Published in: Journal of Econometrics
January 1, 2011

We extend the analytical results for reduced form realized volatility based forecasting in ABM (2004) to allow for market microstructure frictions in the observed high-frequency returns. Our results build on the eigenfunction representation of the general stochastic volatility class of models developed byMeddahi (2001). In addition to traditional realized volatility measures and the role of the underlying sampling frequencies, we also explore the forecasting performance of several alternative volatility measures designed to mitigate the impact of the microstructure noise. Our analysis is facilitated by a simple unified quadratic form representation for all these estimators. Our results suggest that the detrimental impact of the noise on forecast accuracy can be substantial. Moreover, the linear forecasts based on a simple-to-implement 'average' (or 'subsampled') estimator obtained by averaging standard sparsely sampled realized volatility measures generally perform on par with the best alternative robust measures. © 2010 Elsevier B.V. All rights reserved.

Duke Scholars

Published In

Journal of Econometrics

DOI

ISSN

0304-4076

Publication Date

January 1, 2011

Volume

160

Issue

1

Start / End Page

220 / 234

Related Subject Headings

  • Econometrics
  • 4905 Statistics
  • 3802 Econometrics
  • 3801 Applied economics
  • 1403 Econometrics
  • 1402 Applied Economics
  • 0104 Statistics
 

Citation

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ICMJE
MLA
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Andersen, T. G., Bollerslev, T., & Meddahi, N. (2011). Realized volatility forecasting and market microstructure noise. Journal of Econometrics, 160(1), 220–234. https://doi.org/10.1016/j.jeconom.2010.03.032
Andersen, T. G., T. Bollerslev, and N. Meddahi. “Realized volatility forecasting and market microstructure noise.” Journal of Econometrics 160, no. 1 (January 1, 2011): 220–34. https://doi.org/10.1016/j.jeconom.2010.03.032.
Andersen TG, Bollerslev T, Meddahi N. Realized volatility forecasting and market microstructure noise. Journal of Econometrics. 2011 Jan 1;160(1):220–34.
Andersen, T. G., et al. “Realized volatility forecasting and market microstructure noise.” Journal of Econometrics, vol. 160, no. 1, Jan. 2011, pp. 220–34. Scopus, doi:10.1016/j.jeconom.2010.03.032.
Andersen TG, Bollerslev T, Meddahi N. Realized volatility forecasting and market microstructure noise. Journal of Econometrics. 2011 Jan 1;160(1):220–234.
Journal cover image

Published In

Journal of Econometrics

DOI

ISSN

0304-4076

Publication Date

January 1, 2011

Volume

160

Issue

1

Start / End Page

220 / 234

Related Subject Headings

  • Econometrics
  • 4905 Statistics
  • 3802 Econometrics
  • 3801 Applied economics
  • 1403 Econometrics
  • 1402 Applied Economics
  • 0104 Statistics