Forecasting VIX

Journal of Money, Investment and Banking, No. 4, 2008

15 Pages Posted: 11 Apr 2011

See all articles by Stavros Antonios Degiannakis

Stavros Antonios Degiannakis

Department of Economic and Regional Development, Panteion University of Political and Social Sciences

Date Written: 2008

Abstract

Implied volatility index of the S&P500 is considered as a dependent variable in a fractionally integrated ARMA model, whereas volatility measures based on interday and intraday datasets are considered as explanatory variables. The next trading day’s implied volatility forecasts provide positive average daily profits. All the forecasting information is provided by the VIX index itself. There is no incremental predictability from both realized volatility computed from intraday data and conditional volatility extracted from an Arch model. Hence, neither the interday volatility nor the use of intraday data yield any added value in forecasting the S&P 500 implied volatility index. However, an agent cannot utilize VIX predictions in creating abnormal returns in implied volatility futures market.

Keywords: ARCH, ARFIMAX, Fractional Integration, Volatility Forecasting, VIX Index

JEL Classification: C32, C52, C53, G15

Suggested Citation

Degiannakis, Stavros Antonios, Forecasting VIX (2008). Journal of Money, Investment and Banking, No. 4, 2008, Available at SSRN: https://ssrn.com/abstract=1806044

Stavros Antonios Degiannakis (Contact Author)

Department of Economic and Regional Development, Panteion University of Political and Social Sciences ( email )

136 Sygrou
Athens
Greece

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