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Moving beyond Volatility Index (VIX): HARnessing the term structure of implied volatility

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  • Adam Clements
  • Yin Liao
  • Yusui Tang

Abstract

This paper considers how information from the implied volatility (IV) term structure can be harnessed to improve stock return volatility forecasting within the state‐of‐the‐art HAR model. Factors are extracted from the IV term structure and included as exogenous variables in the HAR framework. We found that including slope and curvature factors leads to significant forecast improvements over the HAR benchmark at a range of forecast horizons, compared with the standard HAR model and HAR model with VIX as IV information set.

Suggested Citation

  • Adam Clements & Yin Liao & Yusui Tang, 2022. "Moving beyond Volatility Index (VIX): HARnessing the term structure of implied volatility," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(1), pages 86-99, January.
    • Handle: RePEc:wly:jforec:v:41:y:2022:i:1:p:86-99
    DOI: 10.1002/for.2797
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    Cited by:

    1. Wu, Xinyu & Zhao, An & Liu, Li, 2023. "Forecasting VIX using two-component realized EGARCH model," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).

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