Does Anything Beat 5-Minute RV? A Comparison of Realized Measures Across Multiple Asset Classes

50 Pages Posted: 13 Feb 2013

See all articles by Lily Y. Liu

Lily Y. Liu

Duke University; Federal Reserve Banks - Federal Reserve Bank of Boston

Andrew J. Patton

Duke University - Department of Economics

Kevin Sheppard

University of Oxford - Department of Economics; University of Oxford - Oxford-Man Institute of Quantitative Finance

Date Written: December 5, 2012

Abstract

We study the accuracy of a wide variety of estimators of asset price variation constructed from high-frequency data (so-called “realized measures”), and compare them with a simple “realized variance” (RV) estimator. In total, we consider almost 400 different estimators, applied to 11 years of data on 31 different financial assets spanning five asset classes, including equities, equity indices, exchange rates and interest rates. We apply data-based ranking methods to the realized measures and to forecasts based on these measures. When 5-minute RV is taken as the benchmark realized measure, we find little evidence that it is outperformed by any of the other measures. When using inference methods that do not require specifying a benchmark, we find some evidence that more sophisticated realized measures significantly outperform 5-minute RV. In forecasting applications, we find that a low frequency “truncated” RV outperforms most other realized measures. Overall, we conclude that it is difficult to significantly beat 5-minute RV.

Keywords: realized variance, volatility forecasting, high frequency data

JEL Classification: C58, C22, C53

Suggested Citation

Liu, Lily Y. and Patton, Andrew J. and Sheppard, Kevin Keith, Does Anything Beat 5-Minute RV? A Comparison of Realized Measures Across Multiple Asset Classes (December 5, 2012). Available at SSRN: https://ssrn.com/abstract=2214997 or http://dx.doi.org/10.2139/ssrn.2214997

Lily Y. Liu

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Andrew J. Patton (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

HOME PAGE: http://econ.duke.edu/~ap172/

Kevin Keith Sheppard

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom
+44 1865 616 613 (Phone)

HOME PAGE: http://www.oxford-man.ox.ac.uk

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