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Volatility Forecasts: Do Volatility Estimators and Evaluation Methods Matter?
Author(s) -
Jiang IMing,
Hung JuiCheng,
Wang ChuanSan
Publication year - 2014
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.21643
Subject(s) - volatility (finance) , econometrics , economics , implied volatility , estimator , forward volatility , volatility smile , volatility risk premium , financial economics , stock market volatility , stock (firearms) , stock market , mathematics , statistics , engineering , mechanical engineering , paleontology , horse , biology
This study investigates the volatility forecasting abilities of return‐based and range‐based estimators for two stock indices and two individual stocks in the U.S. stock market. The forecasting performances are evaluated by two robust statistical loss functions, and further by financial applications in risk management and option pricing. Consistent with previous studies, the range‐based volatility forecasts outperform in terms of statistical evaluation, value‐at‐risk calculation, and option pricing. However, return‐based volatility forecasts prove superior in the evaluation of market risk capital requirements. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 34:1077–1094, 2014