Open AccessForecasting Large Price Declines of the Nikkei Using the S&P 500 Implied Volatility
Author(s) -
Chikashi Tsuji
Publication year - 2016
Publication title -
international journal of business administration
Language(s) - English
Resource type - Journals
eISSN - 1923-4015
pISSN - 1923-4007
DOI - 10.5430/ijba.v8n1p58
Subject(s) - volatility (finance) , quantile regression , economics , econometrics , quantile , predictive power , downside risk , implied volatility , regression , financial economics , mathematics , statistics , portfolio , philosophy , epistemology
This paper empirically examines the forecast power of the previous day’s US implied volatility for large declines of the Nikkei by using several versions of quantile regression models. All our empirical results suggest that the previous day’s US S&P 500 implied volatility has forecast power for large price drops of the Nikkei 225 in Japan. Since we repeatedly and carefully tested the several left tail risks in price changes of the Nikkei and we also tested by using some different versions of quantile regression models, our evidence of the predictive power of the S&P 500 implied volatility for downside risk of the Nikkei is very robust.