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The Information Content of Intraday Implied Volatility for Volatility Forecasting

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This study examines the intraday S&P 500 implied volatility index (VIX) to determine when the index contains the most information for volatility forecasting. The findings indicate that, in general, VIX levels around noon are most informative for predicting realized volatility. We posit that the VIX performs better during this time period because trading motivation around noon is less complex, and therefore trades contain more information on the market expectation of future volatility. Further investigation on the 2008 financial crisis period suggests that market participants become more cautious, and thus the forecasting performance is sustained until the market's close. Copyright © 2015 John Wiley & Sons, Ltd.
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Keywords: VIX; crisis; implied volatility; intraday; volatility forecasting

Document Type: Research Article

Publication date: March 1, 2016

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