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VIX and stock market volatility predictability: A new approach

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  • Liu, Zhichao
  • Liu, Jing
  • Zeng, Qing
  • Wu, Lan

Abstract

In this paper, an effective way to forecast stock volatility by selecting dynamic thresholds of the VIX is explored. We examine the predictability of the VIX and its above-threshold values for the S&P 500. Our results indicate that selecting thresholds for the VIX can significantly improve the forecast accuracy. From the out-of-sample R2 statistics, we find that the above-threshold VIX has a better forecasting performance during expansions.

Suggested Citation

  • Liu, Zhichao & Liu, Jing & Zeng, Qing & Wu, Lan, 2022. "VIX and stock market volatility predictability: A new approach," Finance Research Letters, Elsevier, vol. 48(C).
    • Handle: RePEc:eee:finlet:v:48:y:2022:i:c:s1544612322001696
    DOI: 10.1016/j.frl.2022.102887
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    5. Bonaparte, Yosef, 2023. "Introducing the Cryptocurrency VIX: CVIX✰," Finance Research Letters, Elsevier, vol. 54(C).

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