Forecasting global stock market volatilities in an uncertain world
International Review of Financial Analysis
; 85, 2023.
Article
in English
| Scopus | ID: covidwho-2242695
ABSTRACT
We investigate the predictive relationship between uncertainty and global stock market volatilities from a high-frequency perspective. We show that uncertainty contains information beyond fundamentals (volatility) and strongly affects stock market volatility. Using several crucial uncertainty measures (i.e., uncertainty and implied volatility indices), we prove that the CBOE volatility index (VIX) performs best in point (density) forecasting;the financial stress index (FSI) in directional forecasting. Furthermore, VIX's predictive power improved dramatically after the COVID-19 outbreak, and the VIX-based portfolio strategy enables mean-variance investors to achieve higher returns. There are two empirical properties of VIX (i) it helps reduce significantly forecast variance rather than bias;and (ii) its forecasts encompass other uncertainty forecasts well. Overall, we highlight the importance of considering uncertainty when exploring the expected stock market volatility. © 2022 Elsevier Inc.
Full text:
Available
Collection:
Databases of international organizations
Database:
Scopus
Language:
English
Journal:
International Review of Financial Analysis
Year:
2023
Document Type:
Article
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