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Volatility forecasting in practice: exploratory evidence from European hedge funds

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  • Max Schreder

    (University of London)

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.

Suggested Citation

  • Max Schreder, 2018. "Volatility forecasting in practice: exploratory evidence from European hedge funds," Journal of Asset Management, Palgrave Macmillan, vol. 19(4), pages 245-258, July.
    • Handle: RePEc:pal:assmgt:v:19:y:2018:i:4:d:10.1057_s41260-018-0082-y
    DOI: 10.1057/s41260-018-0082-y
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    References listed on IDEAS

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    More about this item

    Keywords

    Hedge funds; Volatility forecasting in practice; Survey evidence;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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