The role of US implied volatility index in forecasting Chinese stock market volatility: Evidence from HAR models

Jihong Xiao, Fenghua Wen, Yupei Zhao and Xiong Wang

International Review of Economics & Finance, 2021, vol. 74, issue C, 311-333

Abstract: The US implied volatility index (VIX) is a popular proxy for global financial market uncertainty. This paper aims to assess the role of this proxy in forecasting the Chinese stock market volatility, as China’s globalization trend is strengthening. For this purpose, we develop six heterogeneous autoregressive (HAR) models allowing for VIX changes to forecast the Chinese stock market volatility. The in-sample and out-of-sample results show the VIX changes can improve the volatility forecasting in the Chinese stock market but mainly show improvement for the bad volatility forecasting rather than for good volatility forecasting. Additionally, such forecasting improvement is sizable at the short-run prediction horizon but weakens as the prediction horizon increases. Our results also remain robust by using alternative evaluation methods and alternative HAR models.

Keywords: Volatility forecasting; Chinese stock market; VIX; Good and bad volatilities; HAR models (search for similar items in EconPapers)
JEL-codes: G15 G17 G18 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:74:y:2021:i:c:p:311-333

DOI: 10.1016/j.iref.2021.03.010

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