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Forecasting VIX: The illusion of forecast evaluation criteria

Author

Listed:
  • Stavros Degiannakis

    (Bank of Greece and Panteion University)

  • Eleftheria Kafousaki

Abstract

The paper uses daily realized volatility measures in order to gain forecast accuracy over stocks’ market implied volatility, as proxied by VIX Index, for forecast horizon of 1, 5, 10 and 22 days ahead. We evaluate forecast accuracy by incorporating a traditional statistical loss function, along with an objective-based evaluation criterion, that is the cumulative returns earned from the different HAR-type volatility models, through a simple yet effective trading exercise on VIX futures. Findings, illustrate how illusive the choice between the two metrics may be, as it ends in two contradicting results.

Suggested Citation

  • Stavros Degiannakis & Eleftheria Kafousaki, 2023. "Forecasting VIX: The illusion of forecast evaluation criteria," Working Papers 322, Bank of Greece.
    • Handle: RePEc:bog:wpaper:322
    DOI: 10.52903/wp2022322
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    Cited by:

    1. Eleftheria Kafousaki & Stavros Degiannakis, 2023. "Forecasting VIX: the illusion of forecast evaluation criteria," Economics and Business Letters, Oviedo University Press, vol. 12(3), pages 231-240.

    More about this item

    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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