Efficient predictability of stock return volatility: The role of stock market implied volatility |
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| Institution: | 1. College of Mathematics and Statistics, Changsha University of Science and Technology, Hunan 410114, China;2. College of Business, Central South University, Hunan 410083, China;3. Supply Chain and Logistics Optimization Research Centre, Faculty of Engineering, University of Windsor, Windsor, ON, Canada;4. Jack H. Brown College of Business and Public Administration, California State University, San Bernardino, USA;1. University of Hail, Department of Finance, Hail, Saudi Arabia;2. Law Faculty, Management and Economic Sciences of Jendouba, Jendouba University, Tunisia;3. Faculty of Management and Economic Sciences of Tunis, El Manar University, The International Finance Group, Tunisia;1. School of Economics and Management, Southwest Jiaotong University, Chengdu, China;2. School of Finance, Nanjing University of Finance and Economics, Nanjing, China;3. Department of Mechanical and Industrial Engineering, Ryerson University, Toronto, Ontario, Canada;1. School of Statistics and Mathematics, Central University of Finance and Economics, China;2. School of Finance, Central University of Finance and Economics, China;1. School of Economics and Management, Nanjing University of Science and Technology, China;2. School of Economics and Management, Southwest Jiao Tong University, China;3. Antai College of Economics and Management, Shanghai Jiao Tong University, China |
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| Abstract: | This study examines the predictability of stock market implied volatility on stock volatility in five developed economies (the US, Japan, Germany, France, and the UK) using monthly volatility data for the period 2000 to 2017. We utilize a simple linear autoregressive model to capture predictive relationships between stock market implied volatility and stock volatility. Our in-sample results show there exists very significant Granger causality from stock market implied volatility to stock volatility. The out-of-sample results also indicate that stock market implied volatility is significantly more powerful for stock volatility than the oil price volatility in five developed economies. |
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| Keywords: | Stock volatility Stock market implied volatility Predictive regression Out-of-sample performance C32 C53 G12 |
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