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The role of implied volatility in volatility combining forecasts

This study explores the role of implied volatility (IV) in volatility combining forecasts for S&P 500 and DAX markets. A range of GARCH models, ad hoc models and STES models were developed to identify the best performing model that served as a base model for subsequent combining process, of whic...

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Main Authors: Ho, Jen Sim, Choo, Wei Chong, Boon, Shui Hooi, Wan, Cheong Kin, Zhang, Yuruixian
Format: Article
Published: Inderscience Publishers 2024
Online Access:http://psasir.upm.edu.my/id/eprint/114901/
https://www.inderscienceonline.com/doi/abs/10.1504/IJEBR.2024.140794
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spelling my.upm.eprints.1149012025-02-07T04:39:39Z http://psasir.upm.edu.my/id/eprint/114901/ The role of implied volatility in volatility combining forecasts Ho, Jen Sim Choo, Wei Chong Boon, Shui Hooi Wan, Cheong Kin Zhang, Yuruixian This study explores the role of implied volatility (IV) in volatility combining forecasts for S&P 500 and DAX markets. A range of GARCH models, ad hoc models and STES models were developed to identify the best performing model that served as a base model for subsequent combining process, of which GJRGARCH model appeared to be the superior model among all the individual models. A total of eight combining models based on Bates and Granger as well as Granger and Ramanathan theories were designed to examine the efficiency of IV in the volatility combining forecasts. The empirical results suggest that IV improves the predictive power of volatility combining forecasts, but the assigned weights were seen less inclined to IV. The inclusion of constant and unconstrained models performed the best. Besides, the study has also addressed the robustness of STES models in volatility forecasts. MCS tests were conducted and further reinforced the superiority of the empirical results. Inderscience Publishers 2024-09-03 Article PeerReviewed Ho, Jen Sim and Choo, Wei Chong and Boon, Shui Hooi and Wan, Cheong Kin and Zhang, Yuruixian (2024) The role of implied volatility in volatility combining forecasts. International Journal of Economics and Business Research, 28 (2). pp. 171-186. ISSN 1756-9850; eISSN: 1756-9869 https://www.inderscienceonline.com/doi/abs/10.1504/IJEBR.2024.140794 10.1504/IJEBR.2024.140794
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
description This study explores the role of implied volatility (IV) in volatility combining forecasts for S&P 500 and DAX markets. A range of GARCH models, ad hoc models and STES models were developed to identify the best performing model that served as a base model for subsequent combining process, of which GJRGARCH model appeared to be the superior model among all the individual models. A total of eight combining models based on Bates and Granger as well as Granger and Ramanathan theories were designed to examine the efficiency of IV in the volatility combining forecasts. The empirical results suggest that IV improves the predictive power of volatility combining forecasts, but the assigned weights were seen less inclined to IV. The inclusion of constant and unconstrained models performed the best. Besides, the study has also addressed the robustness of STES models in volatility forecasts. MCS tests were conducted and further reinforced the superiority of the empirical results.
format Article
author Ho, Jen Sim
Choo, Wei Chong
Boon, Shui Hooi
Wan, Cheong Kin
Zhang, Yuruixian
spellingShingle Ho, Jen Sim
Choo, Wei Chong
Boon, Shui Hooi
Wan, Cheong Kin
Zhang, Yuruixian
The role of implied volatility in volatility combining forecasts
author_facet Ho, Jen Sim
Choo, Wei Chong
Boon, Shui Hooi
Wan, Cheong Kin
Zhang, Yuruixian
author_sort Ho, Jen Sim
title The role of implied volatility in volatility combining forecasts
title_short The role of implied volatility in volatility combining forecasts
title_full The role of implied volatility in volatility combining forecasts
title_fullStr The role of implied volatility in volatility combining forecasts
title_full_unstemmed The role of implied volatility in volatility combining forecasts
title_sort role of implied volatility in volatility combining forecasts
publisher Inderscience Publishers
publishDate 2024
url http://psasir.upm.edu.my/id/eprint/114901/
https://www.inderscienceonline.com/doi/abs/10.1504/IJEBR.2024.140794
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score 13.244413

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