Forecasting returns in the VIX futures market

Research output: Contribution to journalArticle (Academic Journal)peer-review

3 Citations (Scopus)

Abstract

This paper introduces a new forecasting model of VIX futures returns. The model is structural in nature, parsimonious and contains parameters that are relatively easy to estimate. Forecasts of next day VIX futures returns based on this model are superior to those produced by a linear forecasting model that uses the same set of predictors. Moreover, the profits to a market timing model based on the proposed forecasts are statistically and economically significant, and are robust to the method used to adjust for risk and to transaction costs (up to around 15 basis points). By contrast, the forecasts generated by the linear forecasting model are not.
Original languageEnglish
Pages (from-to)1193-1210
Number of pages18
JournalInternational Journal of Forecasting
Volume35
Issue number4
Early online date27 Jun 2019
DOIs
Publication statusPublished - 1 Oct 2019

Structured keywords

  • AF Financial Markets

Keywords

  • Economic significance
  • Forecasting model
  • Market timing
  • VIX futures
  • Volatility

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