Economics, Econometrics and Finance
4 years ago

New Spanish Volatility Index Accurately Predicts Stock Market Trends.

SSRN Electronic Journal
The Information Content in a Volatility Index for Spain
Alfonso Novales, María T. González-Pérez

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A new volatility index (VIBEX-NEW) was created for the Spanish financial market using a model-free approach. This index shows a strong negative relationship with daily stock market returns, making it a good indicator for the Spanish stock market. Surprisingly, VIBEX-NEW can also predict future stock market volatility as well as traditional methods like GARCH(1,1). A method to improve volatility forecasts is suggested.