Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264678 
Year of Publication: 
2003
Series/Report no.: 
Working Paper No. 86
Publisher: 
Oesterreichische Nationalbank (OeNB), Vienna
Abstract: 
Volatility of financial returns as a measure of risk is a key parameter in asset pricing and risk management and holding periods for financial instruments of several weeks or month are common. Nevertheless, little is known about the predictability of return volatility at longer horizons. This paper investigates the predictability of return volatility of the German DAX for forecasting horizons from one day to 45 days with a new model-free test procedure that avoids joint assessments of predictability and assumed volatility models. In Monte Carlo simulatiost is compared with two alternative model-free test procedures. The simulations indicate that the new test has good statistical properties and is more powerful then the other two tests if the distribution of returns is fat tailed. Contrary to earlier findings according to which the return volatility of the DAX is only predictable for 10 to 15 trading days, the empirical evidence provided in this study suggests that the volatility of DAX returns is predictable for horizons of up to 35 trading days and may be forecastable at even longer horizons.
Subjects: 
financial returns volatility
predictability
forecasting
interval forecast evaluation
density forecast evaluation
JEL: 
G10
C53
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.