Do fear indices help predict stock returns?

Abstract

This study investigates the forecasting power of implied volatility indices on forward looking returns. Prior studies document that negative innovations to returns are associated with increasing implied volatility of the underlying indices; thus, suggesting a possible relationship between extremely high levels of implied volatility and positive short term returns. We investigate this issue by examining the predictive power of three implied volatility indices, VIX, VXN and VDAX, on the underlying index returns. We extend previous research by also focusing on characterised selected stocks and examine the relationship between implied volatility indices and future returns across different sectors and classified portfolios. Our findings suggest that implied volatility indices are good predictors of 20-days and 60-days forward looking returns and illustrate insignificant predictive power for very short term (1-day and 5-days) returns.

Implicit expectiles and measures of implied volatility

“…We study the daily dynamic of expectile curves and interexpectile differences, we compare interexpectile differences with a recalculated italian VIX-like index, and finally we consider the forecasting power of the interexpectile difference on future logreturns following the methodology of e.g. Banerjee et al (2007), Rubbaniy et al (2014), Elyasiani et al (2016).…”

Regression-Based Microblogging Influence Detection Framework for Stock Market

“…In (4), (5), (6), (7), n refers to the number of instances, f i refers to the prediction, y i refers to the true value, y refers to the mean value of true value.…”

“…Behavioral finance suggests that stock market prices do not exactly follow a random walk and the Efficient Market Hypothesis (EMH), which means the price could be predicted to some extent. Behavioral finance has further proven that emotions and moods will drive financial decisions significantly [6,7].…”

Estudo Sobre a Relação Entre O Índice De Volatilidade Implícita Ivol-Br E Os Retornos Futuros Do Mercado Acionário Brasileiro E Dos Setores Econômicos

“…Segundo Rubbaniy et al (2014), a capacidade de prever retornos futuros e volatilidade do mercado permite que investidores possam alcançar uma " [...] performance superior no mercado (ineficiente) por meio da antecipação dos seus riscos (volatilidade) e de retornos mais altos obtidos pela antecipação do momento certo de entrar e sair do mercado." (RUBBANIY et al, 2014, p. 1, tradução nossa).…”

“…de alta volatilidade (90%, 95% e 99%) e baixa volatilidade (1%, 5% e 10%) conforme a equação (5).A análise da relação em diferentes intensidades do IVol-BR tem o intuito de averiguar, assim comoRubbaniy et al (2014) efetuou em seu estudo, se os altos (baixos) níveis de volatilidade implícita indicam retornos futuros positivos (negativos), sendo, portanto, um sinal para investidores entrarem no mercado (GIOT, 2005). Posteriormente, explora-se os efeitos do IVol-BR em diferentes níveis de retornos futuros de 1, 5, 20 e 60 dias do Ibovespa, calculando a equação (5) pelo método de regressão quantílica.…”