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Predicting the volatility of the iShares China Large-Cap ETF: What is the role of the SSE 50 ETF?

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  • Zhu, Fangfei
  • Luo, Xingguo
  • Jin, Xuejun

Abstract

This study investigates whether the volatility of the Shanghai Stock Exchange (SSE) 50 ETF contains useful information for predicting the volatility of the U.S.-traded iShares China Large-Cap ETF (FXI). We use both in-sample and out-of-sample predictive regressions to empirically show that the realized volatility of the SSE 50 ETF significantly improves the forecasts of the future FXI realized volatility. We also find that the realized volatility of the SSE 50 ETF has predictive power for the future implied volatility of the FXI, which is calculated from the U.S. options market. However, the empirical results show that both the realized volatility and implied volatility of the FXI have limited explanatory ability for the realized volatility of the SSE 50 ETF.

Suggested Citation

  • Zhu, Fangfei & Luo, Xingguo & Jin, Xuejun, 2019. "Predicting the volatility of the iShares China Large-Cap ETF: What is the role of the SSE 50 ETF?," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x19301040
    DOI: 10.1016/j.pacfin.2019.101192
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