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Volatility information implied in the term structure of VIX

Author

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  • Kai‐Jiun Chang
  • Mao‐Wei Hung
  • Yaw‐Huei Wang
  • Kuang‐Chieh Yen

Abstract

This study uses multiple maturity‐independent variables to examine whether the volatility information implied in the term structure of volatility index can improve the prediction of realized volatility. The empirical results for the S&P 500 index show that, in terms of both the in‐sample estimation and out‐of‐sample forecasting, the term structure variables provide substantial incremental contribution to the models with only level variables. Our empirical results are robust to various forms of volatility, alternative ways to develop the term structure variable, the impact of macroeconomic variables, and alternative underlying assets.

Suggested Citation

  • Kai‐Jiun Chang & Mao‐Wei Hung & Yaw‐Huei Wang & Kuang‐Chieh Yen, 2019. "Volatility information implied in the term structure of VIX," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(1), pages 56-71, January.
    • Handle: RePEc:wly:jfutmk:v:39:y:2019:i:1:p:56-71
    DOI: 10.1002/fut.21964
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    Cited by:

    1. Qiao, Gaoxiu & Teng, Yuxin & Li, Weiping & Liu, Wenwen, 2019. "Improving volatility forecasting based on Chinese volatility index information: Evidence from CSI 300 index and futures markets," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 133-151.
    2. Adam Clements & Yin Liao & Yusui Tang, 2022. "Moving beyond Volatility Index (VIX): HARnessing the term structure of implied volatility," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(1), pages 86-99, January.
    3. Xu Gong & Boqiang Lin, 2021. "Effects of structural changes on the prediction of downside volatility in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(7), pages 1124-1153, July.

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