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The Forecast Performance of Competing Implied Volatility Measures: The Case of Individual Stocks

  • Leonidas Tsiaras


    (Department of Business Studies, ASB, Aarhus University and CREATES)

This study examines the information content of alternative implied volatility measures for the 30 components of the Dow Jones Industrial Average Index from 1996 until 2007. Along with the popular Black-Scholes and \model-free" implied volatility expectations, the recently proposed corridor implied volatility (CIV) measures are explored. For all pair-wise comparisons, it is found that a CIV measure that is closely related to the model-free implied volatility, nearly always delivers the most accurate forecasts for the majority of the firms. This finding remains consistent for different forecast horizons, volatility definitions, loss functions and forecast evaluation settings.

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Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2010-34.

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Length: 35
Date of creation: 01 Feb 2010
Date of revision:
Handle: RePEc:aah:create:2010-34
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