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An International Comparison of Implied, Realized, and GARCH Volatility Forecasts
Author(s) -
Kourtis Apostolos,
Markellos Raphael N.,
Symeonidis Lazaros
Publication year - 2016
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.21792
Subject(s) - volatility (finance) , economics , econometrics , volatility risk premium , autoregressive conditional heteroskedasticity , forward volatility , implied volatility , autoregressive model , diversification (marketing strategy) , volatility smile , financial economics , sabr volatility model , business , marketing
We compare the predictive ability and economic value of implied, realized, and GARCH volatility models for 13 equity indices from 10 countries. Model ranking is similar across countries, but varies with the forecast horizon. At the daily horizon, the Heterogeneous Autoregressive model offers the most accurate predictions, whereas an implied volatility model that corrects for the volatility risk premium is superior at the monthly horizon. Widely used GARCH models have inferior performance in almost all cases considered. All methods perform significantly worse over the 2008–09 crisis period. Finally, implied volatility offers significant improvements against historical methods for international portfolio diversification. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 36:1164–1193, 2016