Forecasting and trading on the VIX futures market: A neural network approach based on open to close returns and coincident indicators

Luca Vincenzo Ballestra, Andrea Guizzardi and Fabio Palladini

International Journal of Forecasting, 2019, vol. 35, issue 4, 1250-1262

Abstract: Previous work has highlighted the difficulty of obtaining accurate and economically significant predictions of VIX futures prices. We show that both low prediction errors and a significant amount of profitability can be obtained by using a neural network model to predict VIX futures returns. In particular, we focus on open-to-close returns (OTCRs) and consider intraday trading strategies, taking into account non-lagged exogenous variables that closely reflect the information possessed by traders at the time when they decide to invest. The neural network model with only the most recent exogenous variables (namely, the return on the Indian BSESN index) is superior to an unconstrained specification with ten lagged and coincident regressors, which is actually a form of weak efficiency involving markets of different countries. Moreover, the neural network turns out to be more profitable than either a logistic specification or heterogeneous autoregressive models.

Keywords: VIX; VIX futures; Forecasting; Coincident indicators; Trading strategies; Weak efficiency (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:35:y:2019:i:4:p:1250-1262

DOI: 10.1016/j.ijforecast.2019.03.022

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