Comparison of range-based volatility estimators against integrated volatility in European emerging markets

• Published in: Finance research letters Vol. 28; pp. 118 - 124
• Main Authors: Arnerić, Josip, Matković, Mario, Sorić, Petar
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.03.2019
• Subjects: Emerging market; Integrated volatility; Loss function; OHLC estimator; Realized variance; Upper tail dependence; Loss function; Upper tail dependence; C33; C32; OHLC estimator; Integrated volatility; G1; Emerging market; Realized variance
• ISSN: 1544-6123; 1544-6131
• DOI: 10.1016/j.frl.2018.04.013

•Finding a consistent and asymptotically unbiased estimator of integrated volatility for emerging markets under consideration.•Determining optimal slow frequency for two time scale estimation.•Employing the upper tail dependence (Gumbel copula) measure for comparison purposes, in addition to standard loss functions MSE and QLIKE.•Employing DM test in determining forecasting accuracy between competing OHLC estimators.•Recommending the appropriate ex-post daily volatility measure in the lack of high-frequency data for each emerging market under consideration. This paper explores the effectiveness of eight range-based volatility estimators for seven European emerging markets. It offers added value by: (i) finding a consistent and asymptotically unbiased estimator of integrated volatility for emerging markets, (ii) employing the upper tail dependence for comparison purposes, in addition to standard loss functions, and (iii) recommending the appropriate ex-post volatility measure in the lack of high-frequency data. When no strong preference for a specific estimator is found, the upper tail dependence measure is consulted, confirming the MSE-based ranking for Czech Republic, Greece, Poland, and Romania; and the QLIKE-based ranking for Bulgaria, Croatia, and Hungary.