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

    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

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

    Fingerprint

    Dive into the research topics of 'A comparison of conditional predictive ability of implied volatility and realized measures in forecasting volatility'. Together they form a unique fingerprint.

    Cite this