ARTÍCULO
TITULO

Testing the predict power of VIX: an application of multiplicative error model

Luis Fernando Pereira Azevedo    
Pedro L. Valls Pereira    

Resumen

VIX - Volatility Index - emerged as an alternative calculation of implied volatility in order to mitigate some problems encountered in models of the Black-Scholes. This kind of volatility is seen as the best predictor of future volatility, given that option traders' expectations are embedded in their values. In this paper we test whether the VIX has more predictive power for future volatility and contains relevant information not found in time series models time for non-negative variables, treated by multiplicative error model. The results indicate that the VIX has greater predictive power in periods of economic stability, but does not contain relevant information to the realized volatility which here is considered as the "true volatility". In periods of economic crisis the result changes, with the VIX presenting the same explanatory power, but contains relevant information in the short term.

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