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Does implied volatility forecast future volatility?

by Wade, Seira`

Abstract

Forecasting volatility in the financial market is a popular discussion today amongst market participants. Implied volatility is commonly recognized as the market’s expectation of future volatility. I examine the in-sample forecasting performance of a popular measure of implied volatility, the CBOE Implied Volatility Index (VIX), on the benchmark indicator of the U.S. Equity market, the S&P500, using data from 2003 to 2014. I find the VIX has the ability to forecast the S&P500. Given the importance of the ability to forecast volatility, the results of this study determine the value of the VIX and its relevance to the discussion of implied volatility.

Note

The author has given permission for this work to be deposited in the Digital Archive of Colorado College.

Colorado College Honor Code upheld.

Includes bibliographical references.

Administrative Notes

The author has given permission for this work to be deposited in the Digital Archive of Colorado College.

Colorado College Honor Code upheld.

Copyright
Copyright restrictions apply.
Publisher
Colorado College
PID
coccc:11156
Digital Origin
born digital
Extent
15 pages : illustrations
Thesis
Senior Thesis -- Colorado College
Thesis Advisor
de Araujo, Pedro
Department/Program
Department of Economics and Business
Degree Name
Bachelor of Arts
Degree Type
bachelor
Degree Grantor
Colorado College
Date Issued
2015-05