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Department of Business Studies, Aarhus School of Business, University of Aarhus Finance Research Group Working Papers, Department of Business Studies, Aarhus School of Business, University of Aarhus

No F-2009-02:
The Forecast Performance of Competing Implied Volatility Measures: The Case of Individual Stocks

Leonidas Tsiaras ()

Abstract: This study examines the information content of alternative implied volatility measures for the 30 components of the Dow Jones Industrial Average Index from 1996 until 2007. Along with the popular Black-Scholes and "model-free" implied volatility expectations, the recently proposed corridor implied volatility (CIV) measures are explored. For all pair-wise comparisons, it is found that a CIV measure that is closely related to the model-free implied volatility, nearly always delivers the most accurate forecasts for the majority of the firms. This finding remains consistent for different forecast horizons, volatility definitions, loss functions and forecast evaluation settings.

Keywords: No keywords; (follow links to similar papers)

37 pages, March 19, 2009

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