Variance swap

Forward volatility

Engineering

Volatility (finance)

Stock (firearms)

Biology

Statistics

Stock market

Economics

Volatility swap

Implied volatility

Paleontology

Mechanical engineering

Mathematics

Estimator

Realized variance

Econometrics

Stochastic volatility

Horse

Financial economics

Volatility smile

Volatility risk premium

International Journal of Forecasting

The general consensus in the volatility forecasting literature is that high-frequency volatility models outperform low-frequency volatility models. However, such a conclusion is reached when low-frequency volatility models are estimated from daily returns. Instead, we study this question considering daily, low-frequency volatility estimators based on open, high, low, and close daily prices. Our data sample consists of 18 stock market indices. We find that high-frequency volatility models tend to outperform low-frequency volatility models only for short-term forecasts. As the forecast horizon increases (up to one month), the difference in forecast accuracy becomes statistically indistinguishable for most market indices. To evaluate the practical implications of our results, we study a simple asset allocation problem. The results reveal that asset allocation based on high-frequency volatility model forecasts does not outperform asset allocation based on low-frequency volatility model forecasts.

Stock market volatility forecasting: Do we need high-frequency data?