AbstractIn this paper, we investigate the time series properties of S&P 100 volatility and the forecasting performance of different volatility models. We consider several nonparametric and parametric volatility measures, such as implied, realized and model-based volatility, and show that these volatility processes exhibit an extremely slow mean-reverting behavior and possible long memory. For this reason, we explicitly model the near-unit root behavior of volatility and construct median unbiased forecasts by approximating the finite-sample forecast distribution using bootstrap methods. Furthermore, we produce prediction intervals for the next-period implied volatility that provide important information about the uncertainty surrounding the point forecasts. Finally, we apply intercept corrections to forecasts from misspecified models which dramatically improve the accuracy of the volatility forecasts. Copyright Â© 2006 John Wiley & Sons, Ltd.
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Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.
Volume (Year): 25 (2006)
Issue (Month): 6 ()
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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966
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- Le, Van & Zurbruegg, Ralf, 2010. "The role of trading volume in volatility forecasting," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(5), pages 533-555, December.
- Robert Ślepaczuk & Grzegorz Zakrzewski, 2009. "High-Frequency and Model-Free Volatility Estimators," Working Papers 2009-13, Faculty of Economic Sciences, University of Warsaw.
- Herwartz, Helmut & Golosnoy, Vasyl, 2007. "Semiparametric Approaches to the Prediction of Conditional Correlation Matrices in Finance," Economics Working Papers 2007,23, Christian-Albrechts-University of Kiel, Department of Economics.
- Jian Zhou & Zhixin Kang, 2011. "A Comparison of Alternative Forecast Models of REIT Volatility," The Journal of Real Estate Finance and Economics, Springer, vol. 42(3), pages 275-294, April.
- Ariful Hoque & Chandrasekhar Krishnamurti, 2012. "Modeling moneyness volatility in measuring exchange rate volatility," International Journal of Managerial Finance, Emerald Group Publishing, vol. 8(4), pages 365-380.
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