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On the Predictability of the Stock Market Volatility: Does History Matter?

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  • Kate Adjaoute
  • Martin Bruand
  • Rajna Gibson‐Asner

Abstract

This study compares the performance of the ISD, the GARCH(1,1), the historical volatility estimates and of two lagged trading volume measures for predicting the Swiss Stock Market Index's (SMI) volatility. The ISD has a superior daily informational content than the GARCH(1,1) estimate and retains unbiased but decreasing explanatory power over up to 20 days ahead horizons. Mean and spread daily volume measures play a significant correcting role when forecasting stock market volatility over daily and longer intervals respectively and clearly dominate the GARCH(1,1) forecasts. Their significance emphasises heterogeneous horizon traders' influence on the SMI volatility time series properties

Suggested Citation

  • Kate Adjaoute & Martin Bruand & Rajna Gibson‐Asner, 1998. "On the Predictability of the Stock Market Volatility: Does History Matter?," European Financial Management, European Financial Management Association, vol. 4(3), pages 293-319, November.
    • Handle: RePEc:bla:eufman:v:4:y:1998:i:3:p:293-319
    DOI: 10.1111/1468-036X.00068
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    Cited by:

    1. Isakov, Dusan & Perignon, Christophe, 2001. "Evolution of market uncertainty around earnings announcements," Journal of Banking & Finance, Elsevier, vol. 25(9), pages 1769-1788, September.
    2. Boulis Ibrahim & Janusz Brzeszczynski, 2013. "Interdependence of Stock Markets Before and After the Global Financial Crisis of 2007," CFI Discussion Papers 1305, Centre for Finance and Investment, Heriot Watt University.
    3. Vogel, Harold L. & Werner, Richard A., 2015. "An analytical review of volatility metrics for bubbles and crashes," International Review of Financial Analysis, Elsevier, vol. 38(C), pages 15-28.
    4. Mr. Marcos R Souto & Mr. Theodore M. Barnhill, 2007. "Stochastic Volatilities and Correlations, Extreme Values and Modeling the Macroeconomic Environment, Under Which Brazilian Banks Operate," IMF Working Papers 2007/290, International Monetary Fund.
    5. Bruce Q. Budd, 2018. "The transmission of international stock market volatilities," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(1), pages 155-173, January.
    6. Ezzat, Hassan, 2012. "The Application of GARCH Methods in Modeling Volatility Using Sector Indices from the Egyptian Exchange," MPRA Paper 51584, University Library of Munich, Germany.
    7. Ercan Balaban & Asli Bayar & Robert Faff, 2006. "Forecasting stock market volatility: Further international evidence," The European Journal of Finance, Taylor & Francis Journals, vol. 12(2), pages 171-188.
    8. Ibrahim, Boulis Maher & Brzeszczynski, Janusz, 2009. "Inter-regional and region-specific transmission of international stock market returns: The role of foreign information," Journal of International Money and Finance, Elsevier, vol. 28(2), pages 322-343, March.

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