Department of Economics and Business Economics

On the Economic Evaluation of Volatility Forecasts

Research output: Working paperResearch

Documents

  • Rp09 56

    Final published version, 278 KB, PDF document

  • Valeri Voev, Denmark
  • School of Economics and Management
We analyze the applicability of economic criteria for volatility forecast evaluation
based on unconditional measures of portfolio performance. The main
theoretical finding is that such unconditional measures generally fail to rank
conditional forecasts correctly due to the presence of a bias term driven by the
variability of the conditional mean and portfolio weights. Simulations and a
small empirical study suggest that the bias can be empirically substantial and
lead to distortions in forecast evaluation. An important implication is that
forecasting superiority of models using high frequency data is likely to be understated
if unconditional criteria are used.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages22
Publication statusPublished - 2009

    Research areas

  • Forecast evaluation, Volatility forecasting, Portfolio optimization, Mean-variance analysis

See relations at Aarhus University Citationformats

Download statistics

No data available

ID: 18272798