Forecasting S&P 100 Volatility : The Incremental Information Content of Implied Volatilities and High Frequency Index Returns

The information content of implied volatilities and intra-day returns is compared, in the context of forecasting index volatility over horizons from one to twenty days. Forecasts of two measures of realised volatility are obtained after estimating ARCH models using daily index returns, daily observations of the VIX index of implied volatility and sums of squares of five minute index returns. The in-sample estimates show that all relevant information is provided by the VIX index and hence there is no incremental information in high-frequency index returns. For out-of-sample forecasting, the VIX index and information from five minute returns provide forecasts that have similar accuracy