 Does VIX or volume improve GARCH volatility forecasts?Dimos S. Kambouroudis and David G. McMillan Applied Economics, 2016, vol. 48, issue 13, 1210-1228 Abstract: This article considers whether the inclusion of two additional variables can improve volatility forecasts over a standard GARCH-based model. We consider three alternative ways of incorporating the volatility index (VIX) and trading volume as exogenous variables within a selection of GARCH models. We are particularly interested in whether these variables have additional incremental forecast power over and above the baseline GARCH specification. Our results suggest that both the VIX and volume do provide some additional forecast power, and this is generally improved when considering both of these series jointly in the model. However, while the results may be statistically significant the gain is marginal and the coefficient values small. Moreover, in a horse race exercise VIX does not outperform the GARCH approach. In answering the question of whether VIX produces better forecasts than the GARCH model, then the answer is no, but the informational content of VIX cannot be ignored and should be incorporated into forecast regressions. Date: 2016 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:48:y:2016:i:13:p:1210-1228 Ordering information: This journal article can be ordered from DOI: 10.1080/00036846.2015.1096004 Access Statistics for this article Applied Economics is currently edited by Anita Phillips More articles in Applied Economics from Taylor & Francis Journals |
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