Forecasting VIX: the illusion of forecast evaluation criteria

Eleftheria Kafousaki and Stavros Degiannakis

Economics and Business Letters, 2023, vol. 12, issue 3, 231-240

Abstract: The study uses daily realized volatility measures in order to gain forecast accuracy over stocks’ market implied volatility, as proxied by VIX Index. We evaluate forecast accuracy by incorporating a traditional statistical loss function, along with an objective-based evaluation criterion, that is the cumulative returns earned from the different HAR-type volatility models, through a simple yet effective trading exercise on VIX futures. Findings, illustrate how illusive the choice between the two metrics may be, as it ends in two contradicting results.

Date: 2023
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Working Paper: Forecasting VIX: The illusion of forecast evaluation criteria (2023)
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