Comparing and combining realized measure and implied volatility for volatility prediction

Shi Yafeng, Yanlong Shi, Peng Xun, Zhu Nenghui, Ying Tingting, Yan Ju

Research output: Journal PublicationArticlepeer-review

1 Citation (Scopus)


In this study, we compare realized measure and implied volatility for forecasting of the volatility. Firstly, we employ a family of homogenous loss functions as the evaluation criteria in order to run a fair and complete forecast comparison. Our results show that, predictors based on realized measures are superior to that derived from implied volatility for both within-sample fitting and one-step-ahead forecasting, whereas the superiority of the latter type is presented in multi-step-ahead forecasting. Secondly, as a result of the comparison, a new model average approach with weights that depend on market conditions is developed to combine the information from implied volatility and realized measure for volatility forecasting. And our results show the superiority of the proposed approach in combining realized measures and implied volatility for volatility prediction.

Original languageEnglish
Pages (from-to)283-304
Number of pages22
JournalInternational Journal of Information and Management Sciences
Issue number4
Publication statusPublished - Dec 2019


  • Combining forecasts
  • Forecasting competitions
  • Implied volatility
  • Realized volatility
  • Volatility forecasts

ASJC Scopus subject areas

  • Control and Systems Engineering
  • Management Information Systems
  • Strategy and Management
  • Industrial and Manufacturing Engineering
  • Information Systems and Management


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