Forecasting Volatility: Evidence From The Swiss Stock Market

Abstract: This thesis focuses on the question whether the volatility index of the Swiss Market Index (VSMI) is an adequate predictor of the future realized volatility. Furthermore, the thesis searches for evidence of incremental information within the VSMI in relation to a set of model based forecasts (MBFs) which could describe future realized volatility. First a theoretical framework, corresponding to the used methodology, is presented. Then the VSMI is assessed in terms of error accuracy, predictive power as well as in-formation content in comparison to generally used models. Additionally, a generalized method of moments (GMM) optimization is used to investigate whether there is addi-tional information contained in the volatility index. The results indicate that the VSMI is the best predictor for future volatility and there is evidence that this volatility index holds incremental information to the extent of information implied in the used set of MBFs.