Author : Andrew J. Patton
Publisher :
ISBN 13 :
Total Pages : 45 pages
Book Rating : 4.:/5 (129 download)
Book Synopsis Volatility Forecast Comparison Using Imperfect Volatility Proxies by : Andrew J. Patton
Download or read book Volatility Forecast Comparison Using Imperfect Volatility Proxies written by Andrew J. Patton and published by . This book was released on 2010 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: The use of a conditionally unbiased, but imperfect, volatility proxy can lead to undesirable outcomes in standard methods for comparing conditional variance forecasts. We derive necessary and sufficient conditions on functional form of the loss function for the ranking of competing volatility forecasts to be robust to the presence of noise in the volatility proxy, and derive some interesting special cases of this class of quot;robustquot; loss functions. We motivate the theory with analytical results on the distortions caused by some widely-used loss functions, when used with standard volatility proxies such as squared returns, the intra-daily range or realised volatility. The methods are illustrated with an application to the volatility of returns on IBM over the period 1993 to 2003.