IDEAS home Printed from https://ideas.repec.org/a/ids/ijecbr/v28y2024i2p171-186.html
   My bibliography  Save this article

The role of implied volatility in volatility combining forecasts

Author

Listed:
  • Jen Sim Ho
  • Wei Chong Choo
  • Shui Hooi Boon
  • Cheong Kin Wan
  • Yuruixian Zhang

Abstract

This study explores the role of implied volatility (IV) in volatility combining forecasts for S&P 500 and DAX markets. A range of GARCH models, ad hoc models and STES models were developed to identify the best performing model that served as a base model for subsequent combining process, of which GJRGARCH model appeared to be the superior model among all the individual models. A total of eight combining models based on Bates and Granger as well as Granger and Ramanathan theories were designed to examine the efficiency of IV in the volatility combining forecasts. The empirical results suggest that IV improves the predictive power of volatility combining forecasts, but the assigned weights were seen less inclined to IV. The inclusion of constant and unconstrained models performed the best. Besides, the study has also addressed the robustness of STES models in volatility forecasts. MCS tests were conducted and further reinforced the superiority of the empirical results.

Suggested Citation

  • Jen Sim Ho & Wei Chong Choo & Shui Hooi Boon & Cheong Kin Wan & Yuruixian Zhang, 2024. "The role of implied volatility in volatility combining forecasts," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 28(2), pages 171-186.
    • Handle: RePEc:ids:ijecbr:v:28:y:2024:i:2:p:171-186
    as

    Download full text from publisher

    File URL: http://www.inderscience.com/link.php?id=140794
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ids:ijecbr:v:28:y:2024:i:2:p:171-186. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sarah Parker (email available below). General contact details of provider: http://www.inderscience.com/browse/index.php?journalID=310 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.