Volatility forecasting in practice: exploratory evidence from European hedge funds

Max Schreder ()
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Max Schreder: University of London

Journal of Asset Management, 2018, vol. 19, issue 4, No 5, 245-258

Abstract: Abstract This note provides survey evidence of volatility forecasting practices in a number of European hedge funds. Results confirm the academic consensus that option-implied volatility (IV) is a commonly used risk management and volatility forecasting tool among “sophisticated” investors, but also highlight the great popularity of simple historical models, whereas stochastic models are of lesser relevance. Sensible, market sentiment capturing forecasting solutions that reduce model complexity are not only demanded, but are also already implemented by a number of practitioners. The development of multi-model forecasting solutions that combine historical and IV information into a reliable predictor of volatility appears to be a promising path for research.

Keywords: Hedge funds; Volatility forecasting in practice; Survey evidence (search for similar items in EconPapers)
JEL-codes: C53 G31 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1057/s41260-018-0082-y

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