Empirical Analysis of VDAX and VSTOXX as Major Volatility Indices in the EU Including Forecasting Tools

Creators: Bamberger, Burkhard and Fahling, Ernst J. and Steurer, Elmar and Ulbig, Manuel
Title: Empirical Analysis of VDAX and VSTOXX as Major Volatility Indices in the EU Including Forecasting Tools
Item Type: Article
Projects: ILR
Journal or Publication Title: Journal of Financial Risk Management : JFRM
Page Range: pp. 315-322
Date: January 2019
Divisions: Wirtschaftswissenschaften
Abstract (ENG): This study reviews various time series forecasting models in order to find the best fit for the VDAX and VSTOXX for one month and one year. Additionally, the influence of the trading volume of the DAX is examined. Both durations are found to be stationary by the Phillips-Perron test, that is why non-integrated models are used. For a duration of one month, a GARCHX(1,1) model is the best fit in-sample as well as out-of-sample, while the best fit for a duration of one year is found to be a ARX(1) model. Based on the forecasts, two trading strategies are tested for each duration, which is a long only strategy and a combination of long and short trades. The performance of both strategies is compared with a simple buy and hold strategy on each VDAX and VSTOXX. It is found that an excess return over the buy and hold strategy can be generated for both durations even with transaction costs.
Forthcoming: No
Language: English
Citation:

Bamberger, Burkhard and Fahling, Ernst J. and Steurer, Elmar and Ulbig, Manuel (2019) Empirical Analysis of VDAX and VSTOXX as Major Volatility Indices in the EU Including Forecasting Tools. Journal of Financial Risk Management : JFRM, 8 (4). pp. 315-322. ISSN 2167-9541

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