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The Information Content of Intraday Implied Volatility for Volatility Forecasting
Author(s) -
Wang YawHuei,
Wang YunYi
Publication year - 2016
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.2373
Subject(s) - volatility (finance) , implied volatility , economics , volatility swap , volatility smile , forward volatility , volatility risk premium , econometrics , noon , index (typography) , financial economics , realized variance , computer science , physics , astronomy , world wide web
This study examines the intraday S&P 500 implied volatility index (VIX) to determine when the index contains the most information for volatility forecasting. The findings indicate that, in general, VIX levels around noon are most informative for predicting realized volatility. We posit that the VIX performs better during this time period because trading motivation around noon is less complex, and therefore trades contain more information on the market expectation of future volatility. Further investigation on the 2008 financial crisis period suggests that market participants become more cautious, and thus the forecasting performance is sustained until the market's close. Copyright © 2015 John Wiley & Sons, Ltd.