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Bridge over ocean
1 January 2005 Financial Analysts Journal Volume 61, Issue 1

Practical Issues in Forecasting Volatility

  1. Ser-Huang Poon
  2. Clive Granger

A comparison is presented of 93 studies that conducted tests of volatility-forecasting methods on a wide range of financial asset returns. The survey found that option-implied volatility provides more accurate forecasts than time-series models. Among the time-series models, no model is a clear winner, although a possible ranking is as follows: historical volatility, generalized autoregressive conditional heteroscedasticity, and stochastic volatility. The survey produced some practical suggestions for volatility forecasting.

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