Option market forecasts outperform in predicting future volatility, impacting stock trading.
The article compares different methods of predicting stock market volatility using option prices and historical returns. They found that using at-the-money options is a better predictor for some stocks, while model-free implied volatility doesn't perform well. The results suggest that the option market may include a premium for volatility risk, and that jump information may affect the accuracy of the forecasts.