Work

Volatility of Volatility and VIX Forecasting: New Evidence Based on Jumps, the Short‐Term and Long‐Term Volatility

Year: 2024

Type: article

Abstract: ABSTRACT This study explores VIX forecasting by proposing a novel model to characterize the volatility of volatility based on high‐frequency VIX. Specifically, the decomposed jumps, the short‐ and long‐term volatility of VIX realized volatility obtained through wavelet analysis are considered by integrating the HAR‐DJI‐GARCH with GARCH‐MIDAS model. Empirical results show superior performance over competing models, with enhanced predictive accuracy under four non‐parametric jumps. The model's effectiveness is further validated by adjusting prediction windows, wavelet levels, examining VIX term structure, varying the significance level of jump test, and through the assessment of its economic significance.

Source: Journal of Futures Markets

DOI: 10.1002/fut.22553

Authors: Gaoxiu Qiao, Wanmei Cui, Yijie Zhou, Chao Liang

Institution: Southwest Jiaotong University

Language: English

Topic: Financial Risk and Volatility Modeling

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

Funders: National Natural Science Foundation of China, Natural Science Foundation of Sichuan Province

Awards: G302397474, G4334528961, G8376200710