DOI: https://doi.org/10.52903/wp2022322
FORECASTING VIX: THE ILLUSION OF
FORECAST EVALUATION CRITERIA
Stavros Degiannakis
Bank of Greece and Panteion University
Eleftheria Kafousaki
Panteion University
Abstract
The paper uses daily realized volatility measures in order to gain forecast accuracy over stocks’ market implied volatility, as proxied by VIX Index, for forecast horizon of 1, 5, 10 and 22 days ahead. We evaluate forecast accuracy by incorporating a traditional statistical loss function, along with an objective-based evaluation criterion, that is the cumulative returns earned from the different HAR-type volatility models, through a simple yet effective trading exercise on VIX futures. Findings, illustrate how illusive the choice between the two metrics may be, as it ends in two contradicting results.
Keywords: Implied volatility forecasting, realized volatility measures, objective-based evaluation criteria
JEL classification: C32, C53, G15
Acknowledgements: The views expressed in this paper are those of the authors and not necessarily those of either the Bank of Greece or the Eurosystem.
Correspondence:
Stavros Degiannakis
Bank of Greece,
21 E. Venizelos Avenue, 10250
Athens, Greece
email: sdegiannakis@bankofgreece.gr