Forecasting the FTSE 100 with High-Frequency Data: A Comparison of Realized Measures
Imperial College Business School
September 26, 2011
In this study I apply the recent advances in volatility estimation and forecasting to the price series of the FTSE 100, retrieved from the TRTH database. I use the recently introduced threshold bipower variation and the realized semivariance together with the usual realized variance and the simple bipower variation. I partially confirm with one-day-ahead in-sample forecasts the general findings. Realized variance is easily outperformed by bipower variation and its threshold integrated version but only the realized semivariance consistently highlights the role of jumps. Moreover, I systematically combine the estimators with: the pre-averaging heuristic, two sampling spaces (calendar and business time) and several sampling frequencies (1 sec, 5 sec, 1 min, 5 min, 1 hrs and 1 day). I find that the estimators with higher forecasting power were pre-averaged in business time at 1 min intervals. Finally, the role of jumps should be interpreted in light of the general trends.
Number of Pages in PDF File: 25
Keywords: Realized Variance, Volatility Forecasting, Forecast Comparison, FTSE, TRTH
JEL Classification: C22, C52, C53
Date posted: September 27, 2011