The longer-horizon predictability of German stock market volatility

This paper examines the predictability of the volatility of the German DAX stock index over a range of 1–45 trading days with a new test procedure. In contrast to earlier findings, according to which the volatility of the DAX is only predictable about 15 trading days into the future, the new test suggests that it is predictable about 40 trading days ahead. Moreover, predictability does not decay too quickly with horizon. An out-of-sample forecasting experiment with alternative volatility models supports the new empirical evidence.