Predictive Density Estimators for Daily Volatility Based on the Use of Realized Measures∗

The main objective of this paper is to propose a feasible, model free estimator of the predictive density of integrated volatility. In this sense, we extend recent papers by Andersen, Bollerslev, Diebold and Labys (2003), and by Andersen, Bollerslev and Meddahi (2004, 2005), who address the issue of pointwise prediction of volatility via ARMA models, based on the use of realized volatility. Our approach is to use a realized volatility measure to construct a non parametric (kernel) estimator of the predictive density of daily volatility. We show that, by choosing an appropriate realized measure, one can achieve consistent estimation, even in the presence of jumps in prices and microstructure noise. More precisely, we establish that four well known realized measures, i.e. realized volatility; bipower variation, and two measures robust to microstructure noise, satisfy the conditions required for the uniform consistency of our estimator. Furthermore, we outline an alternative simulation based approach to predictive density construction. Finally, we carry out a simulation experiment in order to assess the accuracy of our estimators, and provide an empirical illustration that underscores the importance of using microstructure robust measures when using high frequency data.