Measuring and forecasting S&P 500 index‐futures volatility using high‐frequency data

In the 24‐hr foreign exchange market, Andersen and Bollerslev measure and forecast volatility using intraday returns rather than daily returns. Trading in equity markets only occurs during part of the day, and volatility during nontrading hours may differ from the volatility during trading hours. This paper compares various measures and forecasts of volatility in equity markets. In the absence of overnight trading it is shown that the daily volatility is best measured by the sum of intraday squared 5‐min returns, excluding the overnight return. In the absence of overnight trading, the best daily forecast of volatility is produced by modeling overnight volatility differently from intraday volatility. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:497–518, 2002