A forecasting analysis of risk‐neutral equity and Treasury volatilities

Abstract

This paper employs equity (VIX) and Treasury (MOVE) risk‐neutral volatilities to assess their relative forecasting performance with respect to future real activity, stock and Treasury excess returns, and aggregate risk factors. The in‐sample evidence suggests that the square of VIX tends to dominate the square of MOVE. Out‐of‐sample predictive analysis, performed as a horse race between equity and Treasury risk‐neutral volatilities, shows that, contrary to earlier results, the square of VIX and MOVE tend to complement each other.