Research Paper 2009-56 On the Economic Evaluation of Volatility Forecasts

@inproceedings{Voev2009ResearchP2,
  title={Research Paper 2009-56 On the Economic Evaluation of Volatility Forecasts},
  author={Valeri Voev},
  year={2009}
}
  • Valeri Voev
  • Published 2009
We analyze the applicability of economic criteria for volatility forecast evaluation based on unconditional measures of portfolio performance. The main theoretical finding is that such unconditional measures generally fail to rank conditional forecasts correctly due to the presence of a bias term driven by the variability of the conditional mean and portfolio weights. Simulations and a small empirical study suggest that the bias can be empirically substantial and lead to distortions in forecast… CONTINUE READING

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