Forecasting Canadian Equity Volatility: The Information Content of the MVX Index

The information content of the option implied equity volatility index (MVX) in Canada is examined. We compare the in-sample and out-of-sample forecasting performance of the GJR model and the combination of GJR and implied volatility index. Forecasts of two measures of volatility are obtained by estimation using an ARCH model based on daily index stock returns and the daily MVX index. The in-sample estimates show that nearly all relevant information is provided by the index return. For out-of-sample forecasting, the MVX index provides the most accurate forecast for all forecast horizons and performance measures considered.