The role of implied volatility in volatility combining forecasts
This study explores the role of implied volatility (IV) in volatility combining forecasts for S&P 500 and DAX markets. A range of GARCH models, ad hoc models and STES models were developed to identify the best performing model that served as a base model for subsequent combining process, of whic...
| Main Authors: | , , , , |
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| Format: | Article |
| Published: |
Inderscience Publishers
2024
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| Online Access: | http://psasir.upm.edu.my/id/eprint/114901/ |
| _version_ | 1848866629332500480 |
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| author | Ho, Jen Sim Choo, Wei Chong Boon, Shui Hooi Wan, Cheong Kin Zhang, Yuruixian |
| author_facet | Ho, Jen Sim Choo, Wei Chong Boon, Shui Hooi Wan, Cheong Kin Zhang, Yuruixian |
| author_sort | Ho, Jen Sim |
| building | UPM Institutional Repository |
| collection | Online Access |
| description | This study explores the role of implied volatility (IV) in volatility combining forecasts for S&P 500 and DAX markets. A range of GARCH models, ad hoc models and STES models were developed to identify the best performing model that served as a base model for subsequent combining process, of which GJRGARCH model appeared to be the superior model among all the individual models. A total of eight combining models based on Bates and Granger as well as Granger and Ramanathan theories were designed to examine the efficiency of IV in the volatility combining forecasts. The empirical results suggest that IV improves the predictive power of volatility combining forecasts, but the assigned weights were seen less inclined to IV. The inclusion of constant and unconstrained models performed the best. Besides, the study has also addressed the robustness of STES models in volatility forecasts. MCS tests were conducted and further reinforced the superiority of the empirical results. |
| first_indexed | 2025-11-15T14:23:38Z |
| format | Article |
| id | upm-114901 |
| institution | Universiti Putra Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-15T14:23:38Z |
| publishDate | 2024 |
| publisher | Inderscience Publishers |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | upm-1149012025-02-07T04:39:39Z http://psasir.upm.edu.my/id/eprint/114901/ The role of implied volatility in volatility combining forecasts Ho, Jen Sim Choo, Wei Chong Boon, Shui Hooi Wan, Cheong Kin Zhang, Yuruixian This study explores the role of implied volatility (IV) in volatility combining forecasts for S&P 500 and DAX markets. A range of GARCH models, ad hoc models and STES models were developed to identify the best performing model that served as a base model for subsequent combining process, of which GJRGARCH model appeared to be the superior model among all the individual models. A total of eight combining models based on Bates and Granger as well as Granger and Ramanathan theories were designed to examine the efficiency of IV in the volatility combining forecasts. The empirical results suggest that IV improves the predictive power of volatility combining forecasts, but the assigned weights were seen less inclined to IV. The inclusion of constant and unconstrained models performed the best. Besides, the study has also addressed the robustness of STES models in volatility forecasts. MCS tests were conducted and further reinforced the superiority of the empirical results. Inderscience Publishers 2024-09-03 Article PeerReviewed Ho, Jen Sim and Choo, Wei Chong and Boon, Shui Hooi and Wan, Cheong Kin and Zhang, Yuruixian (2024) The role of implied volatility in volatility combining forecasts. International Journal of Economics and Business Research, 28 (2). pp. 171-186. ISSN 1756-9850; eISSN: 1756-9869 https://www.inderscienceonline.com/doi/abs/10.1504/IJEBR.2024.140794 10.1504/IJEBR.2024.140794 |
| spellingShingle | Ho, Jen Sim Choo, Wei Chong Boon, Shui Hooi Wan, Cheong Kin Zhang, Yuruixian The role of implied volatility in volatility combining forecasts |
| title | The role of implied volatility in volatility combining forecasts |
| title_full | The role of implied volatility in volatility combining forecasts |
| title_fullStr | The role of implied volatility in volatility combining forecasts |
| title_full_unstemmed | The role of implied volatility in volatility combining forecasts |
| title_short | The role of implied volatility in volatility combining forecasts |
| title_sort | role of implied volatility in volatility combining forecasts |
| url | http://psasir.upm.edu.my/id/eprint/114901/ http://psasir.upm.edu.my/id/eprint/114901/ http://psasir.upm.edu.my/id/eprint/114901/ |