Comparing realized and absolute return volatility measures

This paper compares two different ways to measure volatility, with a survey of techniques that analyze their respective probability distribution, mean-reversion, cross-correlation, and long-term memory effects.

Excerpt: “…two nonparametric measurements have emerged and received wide use over the past decade: realized volatility and absolute return volatility. The former is strongly favored in the financial sector and the latter by econophysicists. We examine the memory and clustering features of these two methods and find that both enable strong predictions. We compare the two in detail and find that although realized volatility has a better short-term effect that allows predictions of near-future market behavior, absolute return volatility is easier to calculate and, as a risk indicator, has approximately the same sensitivity as realized volatility.”

Link to paper