on estimates of the: (i) volatility of returns; and (ii) variance-covariance matrix of n. assets. We propose a Kalman … allows us to employ volatility estimators that achieve very low Root Mean Squared Errors (RMSEs) compared to other estimators …

Realized variance can be broken down into continuous volatility and jumps. We show that these two components have very … different predictive powers on future long-term excess stock market returns. While continuous volatility is a key driver of … volatility and future returns. Two by-products of our analysis are that imposing model-based constraints on long term regressions …