Moving beyond Volatility Index (VIX): HARnessing the term structure of implied volatility. (7th June 2021)

• Record Type: Journal Article
• Authors: Clements, Adam; Liao, Yin; Tang, Yusui
• Is Part Of: Journal of forecasting. Volume 41:Number 1(2022)
• Page Start: 86
• Page End: 99
• Publication Date: 2021-06-07
• Subjects: curvature -- HAR model -- implied volatility term structure -- realized volatility -- slope -- VIX; Forecasting -- Periodicals; Forecasting -- Mathematical models -- Periodicals; 003.2
• DOI: 10.1002/for.2797
• Languages: English
• ISSNs: 0277-6693

Abstract

Abstract: This paper considers how information from the implied volatility (IV) term structure can be harnessed to improve stock return volatility forecasting within the state‐of‐the‐art HAR model. Factors are extracted from the IV term structure and included as exogenous variables in the HAR framework. We found that including slope and curvature factors leads to significant forecast improvements over the HAR benchmark at a range of forecast horizons, compared with the standard HAR model and HAR model with VIX as IV information set.