Download this Paper Open PDF in Browser

Uncovering the Benefit of High-Frequency Data in Portfolio Allocation

49 Pages Posted: 12 Mar 2014 Last revised: 13 Oct 2015

Ingmar Nolte

Lancaster University - Department of Accounting and Finance

Qi Xu

Zhejiang University - School of Economics and Academy of Financial Research

Date Written: October 12, 2015

Abstract

In previous studies, high-frequency data has been used to improve portfolio allocation by estimating the full realized covariance matrix. In this paper, we show that strategies using high-frequency data for measuring and forecasting univariate realized volatility alone can already generate statistically significant and economically tangible benefits compared to low-frequency strategies. Most importantly, however, high-frequency data also allow us to separate realized volatility into different components and construct realized higher moments. Strategies using upside and downside volatility components as well as realized skewness are shown to reveal additional information and deliver incremental economic benefits over strategies using total realized volatility alone.

Keywords: high-frequency data, downside risk, asset allocation, realized moments, volatility forecasting

JEL Classification: C3, C5, G1

Suggested Citation

Nolte, Ingmar and Xu, Qi, Uncovering the Benefit of High-Frequency Data in Portfolio Allocation (October 12, 2015). Available at SSRN: https://ssrn.com/abstract=2406899 or http://dx.doi.org/10.2139/ssrn.2406899

Ingmar Nolte

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Qi Xu (Contact Author)

Zhejiang University - School of Economics and Academy of Financial Research

Yuquan Campus 38 Zheda Road
Hangzhou, Zhejiang 310027
China

Paper statistics

Downloads
536
Rank
42,841
Abstract Views
2,856