The paper compares the efficacy of high low range volatility and implied volatility indexes in volatility forecasting. VIX and VXO, the constructed volatility indexes of Taiwan stock market, are usually believed to deliver effective forecasts of stock index return volatility. Based on the econometric models examined in the paper, the high low range volatility is found to provide volatility forecasting at least as efficient as do the volatility indexes. For smaller in-sample size, however, VIX is more efficient than other models in volatility forecast. In a market like Taiwan where volatility index may be hard to measure with accuracy due to a less liquid option trading, the high low range volatility, in combination with VIX, can be used by practitioners as alternative tools in investment decisions and risk management.
International Research Journal of Finance and Economics