Do short-term market swings improve realized volatility forecasts?

Junyu Zhang, Xinfeng Ruan and Jin E. Zhang

Finance Research Letters, 2023, vol. 58, issue PD

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.

Keywords: Realized volatility; VIX1D index; Volatility prediction (search for similar items in EconPapers)
JEL-codes: G13 G14 G17 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pd:s1544612323010012

DOI: 10.1016/j.frl.2023.104629

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