A comparison of conditional predictive ability of implied volatility and realized measures in forecasting volatility

Yafeng Shi, Tingting Ying, Yanlong Shi, Chunrong Ai

Research output: Journal PublicationArticlepeer-review

1 Citation (Scopus)

Abstract

In a conditional predictive ability test framework, we investigate whether market factors influence the relative conditional predictive ability of realized measures (RMs) and implied volatility (IV), which is able to examine the asynchronism in their forecasting accuracy, and further analyze their unconditional forecasting performance for volatility forecast. Our results show that the asynchronism can be detected significantly and is strongly related to certain market factors, and the comparison between RMs and IV on average forecast performance is more efficient than previous studies. Finally, we use the factors to extend the empirical similarity (ES) approach for combination of forecasts derived from RMs and IV.

Original languageEnglish
Pages (from-to)1025-1034
Number of pages10
JournalJournal of Forecasting
Volume39
Issue number7
DOIs
Publication statusPublished - 1 Nov 2020

Keywords

  • conditional predictive ability
  • forecasting competitions
  • implied volatility
  • realized volatility
  • volatility forecasts

ASJC Scopus subject areas

  • Economics and Econometrics
  • Computer Science Applications
  • Statistics, Probability and Uncertainty
  • Modelling and Simulation
  • Strategy and Management
  • Management Science and Operations Research

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