The information content of risk-neutral skewness for volatility forecasting

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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. (C) 2013 Elsevier B.V. All rights reserved.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2013-09
Language
English
Article Type
Article
Keywords

IMPLIED VOLATILITY; REALIZED VOLATILITY; LONG-MEMORY; STOCK; RETURNS; MODEL; HETEROSKEDASTICITY; DEVIATIONS; COMPONENTS; EXCHANGE

Citation

JOURNAL OF EMPIRICAL FINANCE, v.23, pp.142 - 161

ISSN
0927-5398
DOI
10.1016/j.jempfin.2013.05.006
URI
http://hdl.handle.net/10203/254497
Appears in Collection
MT-Journal Papers(저널논문)
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