The information content of risk-neutral skewness for volatility forecasting

Suk Joon Byun and Jun Sik Kim

Journal of Empirical Finance, 2013, vol. 23, issue C, 142-161

Abstract: The paper investigates whether risk-neutral skewness has incremental explanatory power for future volatility in the S&P 500 index. While most of previous studies have investigated the usefulness of historical volatility and implied volatility for volatility forecasting, we study the information content of risk-neutral skewness in volatility forecasting model. In particular, we concentrate on Heterogeneous Autoregressive model of Realized Volatility and Implied Volatility (HAR-RV-IV). We find that risk-neutral skewness contains additional information for future volatility, relative to past realized volatilities and implied volatility. Out-of-sample analyses confirm that risk-neutral skewness improves significantly the accuracy of volatility forecasts for future volatility.

Keywords: Volatility forecast; Realized volatility; Risk-neutral skewness (search for similar items in EconPapers)
JEL-codes: C13 C22 C53 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927539813000455
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:23:y:2013:i:c:p:142-161

DOI: 10.1016/j.jempfin.2013.05.006

Access Statistics for this article

Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().