Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7361083 | Journal of Empirical Finance | 2013 | 64 Pages |
Abstract
The paper investigates whether risk-neutral skewness has incremental explanatory power for future volatility in the S&P 500 index. While most of previous studies have investigated the usefulness of historical volatility and implied volatility for volatility forecasting, we study the information content of risk-neutral skewness in volatility forecasting model. In particular, we concentrate on Heterogeneous Autoregressive model of Realized Volatility and Implied Volatility (HAR-RV-IV). We find that risk-neutral skewness contains additional information for future volatility, relative to past realized volatilities and implied volatility. Out-of-sample analyses confirm that risk-neutral skewness improves significantly the accuracy of volatility forecasts for future volatility.
Related Topics
Social Sciences and Humanities
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Authors
Suk Joon Byun, Jun Sik Kim,