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Do short-term market swings improve realized volatility forecasts?

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Listed:
  • Zhang, Junyu
  • Ruan, Xinfeng
  • Zhang, Jin E.

Abstract

CBOE recently introduced a new volatility index, VIX1D. This paper aims to provide a concise evaluation of the effectiveness of this new index that reflects short-term market swings in predicting realized volatility. Similar to VIX, VIX1D exhibits a positive relationship with future realized volatility. When incorporated into HAR-RV, VIX1D demonstrates considerably enhanced predictive capability compared to VIX for one-day ahead predictions, as confirmed by various out-of-sample analyses. Additionally, the predictive capacity of VIX1D diminishes more rapidly compared to that of VIX. These findings validate that short-term swings significantly improve the forecast of short-term realized volatility.

Suggested Citation

  • Zhang, Junyu & Ruan, Xinfeng & Zhang, Jin E., 2023. "Do short-term market swings improve realized volatility forecasts?," Finance Research Letters, Elsevier, vol. 58(PD).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pd:s1544612323010012
    DOI: 10.1016/j.frl.2023.104629
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    More about this item

    Keywords

    Realized volatility; VIX1D index; Volatility prediction;
    All these keywords.

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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