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Diebold, F.X. Hickman, A., Inoue, A. and Schuermann, T. (1998), Converting 1-Day Volatility to h-Day Volatility: Scaling by Root-h is Worse than You Think, Wharton Financial Institutions Center, Working Paper 97-34. Published in condensed form as Scale Models, Risk, 11, 104-107, 1998. Converting 1-Day Volatility to h-Day Volatility: Scaling by h is Worse than You Think Francis X. Diebold Andrew Hickman University of Pennsylvania Oliver, Wyman and Company fdiebold@ ahickman@ Atsushi Inoue Til Schuermann University of Pennsylvania Oliver, Wyman and Company inoue@ tschuermann@ December 1996 This Print: July 3, 1997 Copyright © 1997 F.X. Diebold, A. Hickman, A. Inoue, and T. Schuermann. This paper is available on the World Wide Web at /~diebold/ and may be freely reproduced for educational and research purposes, so long as it is not altered, this copyright notice is reproduced with it, and it is not sold for profit. Correspondence to: F.X. Diebold Department of Economics University of Pennsylvania 3718 Locust Walk Philadelphia, PA 19104-6297 Abstract : We show that the common practice of converting 1-day volatility estimates to h- day estimates by scaling by h is inappropriate and produces overestimates of the variability of long-horizon volatility. We conclude that volatility models are best tailored to