The economic value of volatility forecasts: a conditional approach

Taylor, Nick James 2014. The economic value of volatility forecasts: a conditional approach. Journal of Financial Econometrics 12 (3) , pp. 433-478. 10.1093/jjfinec/nbt021

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Abstract

We investigate the economic value of multivariate volatility forecasting ability using a testing framework that assesses the quality of competing methods from a conditional investment perspective. This approach provides a novel means of assessing the benefits of using a particular set of volatility forecasts. Applying the framework to U.S. bond and stock futures markets, we find that investors are willing to pay a significant premium for knowledge of the dynamics of volatility, though the magnitude of this premium varies over time and depends on risk preferences and economic conditions. The latter variation implies that selection of appropriate forecasting methods should be a conditional exercise.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Uncontrolled Keywords:	economic value, forecasting, volatility
Publisher:	Oxford University Press
ISSN:	1479-8409
Date of Acceptance:	26 June 2013
Last Modified:	25 Feb 2019 16:08
URI:	https://orca.cardiff.ac.uk/id/eprint/49933

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