Forecasting volatilities in equity, bond and money markets: A market-based approach

Wang, Kent (2010) Forecasting volatilities in equity, bond and money markets: A market-based approach. Australian Journal of Management, 35 2: 165-180. doi:10.1177/0312896210370080


Author Wang, Kent
Title Forecasting volatilities in equity, bond and money markets: A market-based approach
Journal name Australian Journal of Management   Check publisher's open access policy
ISSN 0312-8962
1327-2020
Publication date 2010-08
Sub-type Article (original research)
DOI 10.1177/0312896210370080
Volume 35
Issue 2
Start page 165
End page 180
Total pages 16
Place of publication London, United Kingdom
Publisher Sage Publications
Collection year 2011
Language eng
Abstract This study examines the forecasting power of the most popular volatility forecasting models in the S&P 500 index market, the Eurodollar futures market, and the 30-year US T-Bond futures market at a daily level using a market-based option-pricing error approach. Comparison has been made between two methods including and excluding implied volatility in option-pricing error approach in forecasting next-day volatilities. To remove any advantage to option-implied volatility, the analysis is performed in two steps. Spurious regression biases and biases in the measurement of volatility forecasts are controlled for.The evidence from this paper supports the use of implied volatility as a proxy for market volatility, as it works best in forecasting next-day realized volatility in all the three US markets. The appropriateness of including implied volatility in option-pricing error approach is also discussed. © The Author(s) 2010.
Keyword Realized volatility
Forecasting models
Spurious regression biases
Option-pricing
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2011 Collection
UQ Business School Publications
 
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Created: Sun, 02 Jan 2011, 00:18:49 EST