TY - JOUR
T1 - The Role of Realized Ex-Post Covariance Measures and Dynamic Model Choice and the Quality of Covariance Forecast
AU - Varneskov, Rasmus T.
AU - Voev, Valeri
PY - 2013
Y1 - 2013
N2 - Recently, consistent measures of the ex-post covariation of financial assets based on noisy high-frequency data have been proposed. A related strand of literature focuses on dynamic models and covariance forecasting for high-frequency data based covariance measures. The aim of this paper is to investigate whether more sophisticated estimation approaches lead to more precise covariance forecasts, both in a statistical precision sense and in terms of economic value. A further issue, we address, is the relative importance of the quality of the realized measure as an input in a given forecasting model vs. the model's dynamic specification. The main finding is that the largest gains result from switching from daily to high-frequency data. Further gains are achieved if a simple sparse sampling covariance measure is replaced with a more efficient and noise-robust estimator.
AB - Recently, consistent measures of the ex-post covariation of financial assets based on noisy high-frequency data have been proposed. A related strand of literature focuses on dynamic models and covariance forecasting for high-frequency data based covariance measures. The aim of this paper is to investigate whether more sophisticated estimation approaches lead to more precise covariance forecasts, both in a statistical precision sense and in terms of economic value. A further issue, we address, is the relative importance of the quality of the realized measure as an input in a given forecasting model vs. the model's dynamic specification. The main finding is that the largest gains result from switching from daily to high-frequency data. Further gains are achieved if a simple sparse sampling covariance measure is replaced with a more efficient and noise-robust estimator.
KW - Forecast evaluation
KW - Volatility forecasting
KW - Portfolio optimization
KW - Mean-variance analysis
KW - Forecast evaluation
KW - Volatility forecasting
KW - Portfolio optimization
KW - Mean-variance analysis
U2 - 10.1016/j.jempfin.2012.11.002
DO - 10.1016/j.jempfin.2012.11.002
M3 - Journal article
SN - 0927-5398
VL - 20
SP - 83
EP - 95
JO - Journal of Empirical Finance
JF - Journal of Empirical Finance
ER -