Forecasting S&P 100 volatility: the incremental information content of implied volatilities and high-frequency index returns

The information content of implied volatilities and intraday returns is com pared, in the context of forecasting index volatility over horizons from 1 to 20 days. Forecasts of two measures of realised volatility are obtained a fter estimating ARCH models using daily index returns, daily observations o f the VIX index of implied volatility and sums of squares of 5-min index re turns. The in-sample estimates show that nearly all relevant information is provided by the VIX index and hence there is not much incremental informat ion in high-frequency index returns. For out-of-sample forecasting, the VIX index provides the most accurate forecasts for all forecast horizons and p erformance measures considered. The evidence for incremental forecasting in formation in intraday returns is insignificant. (C) 2001 Elsevier Science S .A. All rights reserved.