A new star is born: does the VIX1D render common

volatility forecasting models for the U.S. equity market obsolete?

Stefan Albersa
a
Faculty of Business and Economics, Dresden University of Technology, Germany

Abstract

Due to the high relevance of 1-day volatility forecasts and the increasing demand for zero-
day-to-expiration (0DTE) options on the S&P 500, the Cboe recently introduced the 1-Day
Volatility Index (VIX1D). Compared to the longer-term volatility indices of the VIX family,
it is overall lower and more volatile, shows a weaker negative correlation with the S&P 500,
and has a distinctive intraday pattern with an upward trend. We show that the new index
overestimates the volatility of the S&P 500 significantly and propose an easy-to-implement
proxy to adjust for the inherent volatility risk premium (VRP). By comparing the adjusted
VIX1D with the original and various extended Heterogeneous Autoregressive (HAR(X)) mod-
els, we show that the adjusted VIX1D forecasts the volatility more accurately while requiring
considerably less historical data. Thus, our results indicate that the VIX1D has the potential
to fundamentally change the way researchers and practitioners generate volatility forecasts
for the U.S. stock market.
Keywords: VIX1D, implied volatility, volatility forecasting, HAR modeling, 0DTE options
JEL: G17, C5, C32

⋆
I would like to thank Hagen Kuhn, Paul Reiter, Tony Klein, and Matthias Mattusch for their valuable
comments and suggestions.
Email address: stefan.albers@tu-dresden.de (Stefan Albers)

This Version: July 10, 2023

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1. Introduction

The VIX1D index, as one of the recent developments from the Cboe Labs, has the potential
to fundamentally change the way researchers and practitioners generate volatility forecasts
for the U.S. stock market. It reflects the expected volatility of the S&P 500 with a constant
maturity of a single day, thus complementing the existing range of Cboe volatility indices
that cover time horizons from nine days (VIX9D) to one year (VIX1Y). Among these indices,
the VIX, which refers to the next 30 days, is the most important and has become one of
the most popular market indices. In numerous studies, it has proven to enhance volatility
forecasts (see, e.g., Corrado and Miller (2005), Wang et al. (2020), Megaritis et al. (2021)),
be an effective uncertainty measure (see Jurado et al. (2015) and Bekaert et al. (2013)) and
investor fear gauge (Whaley, 2000) not only for the U.S. stock market (see, e.g., Jubinski
and Lipton (2013) for the impact on commodity volatility, and Geng and Guo (2022) for the
impact on exchange rate volatility). The value-added for volatility modeling and forecasting is
particularly relevant, as these represent one of the most important research strands in finance
and are relevant for numerous practical applications - from simple risk management tools like
value-at-risk estimations to complex concepts like macroeconomic stability measures.
With the introduction of VIX options, VIX futures, and further exchange-traded products
based on them, an entire industry has emerged around VIX in the past decades. Now, the
VIX1D has the potential to become even more relevant than the VIX. This is primarily due
to two reasons: 1. Regarding the time horizon, modeling and forecasting the volatility of
the following or even the current day are particularly relevant in practical applications and
scientific studies. Why should practitioners and researchers use an index that pertains to a
30-day period when there is now a 1-day volatility index available? 2. For the calculation of
the VIX, the Cboe uses prices of options with a remaining maturity between 23 and 37 days to
the Friday SPX expiration (Cboe, 2023b). However, the growing demand for 0DTE options
further intensified as the Cboe last year expanded weekly SPX (SPXW) options expirations
to cover each weekday (Cboe, 2022). According to GoldmanSachs (2023), the proportion of

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0DTE options in the trading volume of all SPX options has doubled since last year and now
exceeds 40% (see Figure A.1 in the Appendix). The fact that the market valuations of these
options, due to their short time to expiration, are not incorporated into the calculation of
the VIX could limit its informativeness and even distort it. In contrast, the VIX1D explicitly
includes 0DTE options. Due to its novelty, we are among the first to study the characteristics
and, in particular, the predictive power of the VIX1D. In doing so, we extend previous studies
that have evaluated existing volatility indices (e.g., Corrado and Miller (2005), Fassas and
Siriopoulos (2021), and Albers (2023)) and those that have assessed the information content
of implied volatility, particularly of the VIX. Recent studies by Dutta and Das (2022), Gong
et al. (2022), and Kambouroudis et al. (2021) have shown that including the VIX as an
explanatory variable leads to improved volatility forecasts. Motivated by these studies, we
employ HARX models that incorporate the VIX, alongside the pure HAR as benchmark
models and adapt these approaches for the VIX1D. To better examine the potential of VIX1D,
we also evaluate VIX1D itself and propose a model-free and easy-to-implement adjustment
based on the VRP. The results indicate that the VIX1D, through this simple adjustment,
provides more accurate volatility forecasts than the benchmark models. Another advantage
is that this approach requires very few historical data and no parameter estimation, unlike
conventional volatility models. Given these findings, we recommend the adjusted VIX1D for
both researchers and practitioners for forecasting 1-day volatility of the S&P 500 and point
out promising paths for future studies.
The remainder of this paper is organized as follows: Section 2 outlines the methodology.
Section 3 describes the data used. The results of the empirical analyses are presented in
Section 4. In Section 5, we discuss the findings, limitations, and implications. Our conclusion
is summarized in Section 6.

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2. Methodology

2.1. VIX1D Index Calculation

The methodology chosen by Cboe for calculating the VIX1D is essentially the same as that
for their volatility indices with longer time horizons. Accordingly, the VIX1D reflects market
participants’ expectation of the annualized standard deviation of the S&P 500 in percentage
points:
√
V IX1D = 100 × σ2 (1)

In the case of VIX1D, differently weighted p.m.-settled SPXW put and call options across
a wide range of strike prices are aggregated to measure the implied volatility referring to
the constant time horizon of one day. The generalized formula for the VIX1D calculation
provided by the Cboe (2023c) reads:

 2
2 2 X ∆Ki RT 1 F
σ = e Q(Ki ) − −1 , (2)
Γ i Ki2 Γ K0

where Γ is the time to expiration in business years, F the option-implied forward price, K0
the first strike equal to or otherwise immediately below forward index level F , Ki the strike
price of the ith out-of-the-money option; a call if Ki > K0 and a put if Ki < K0 ; both put
and call if Ki = K0 , ∆Ki is the interval between strike prices - half the difference between
Ki+1 −Ki−1
the strike on either side of Ki : ∆Ki = 2
, R the risk-free interest rate to expiration,
and Q(Ki ) the midpoint of the bid-ask spread for each option with strike Ki .
The relatively short and constant time horizon is made possible by including 0DTE options
and necessitates a few adjustments compared to the VIX methodology (see Cboe (2023c)).
Two adjustments are relevant for our analyses: 1. Since the time to expiration of the op-
tions that expire on the current day declines to zero during the trading day, the single-term
volatility of the near term is adjusted during the last 60 minutes until expiration. Once the
near-term options have expired, the VIX1D fully converges to the implied volatility of the
next-term options. 2. When the near-term options have expired, the VIX1D only uses the

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next-term contracts (usually between 4:00 p.m. ET and 4:15 p.m. ET). Thus, the VIX1D at
the end of the trading day reflects an expectation for the volatility of the following trading
day. A further difference to the VIX is that the VIX1D (so far) is only calculated during reg-
ular trading hours (between 9:31 a.m. and 4:15 p.m. ET). Since we use close prices referring
to the same point in time for all analyses, except for the intraday pattern of the VIX1D, this
difference is irrelevant.

2.2. Realized volatility estimation

We use the sum of intraday squared returns to approximate the integrated latent volatility
of the S&P 500 on trading day t. This proxy, known as realized volatility (RV), has been
confirmed to be suitable in terms of efficiency, consistency, and simplicity by Andersen et al.
(2001), Barndorff-Nielsen and Shephard (2002), Andersen et al. (2003) among others. To
avoid a bias owing to microstructure noise that is further described by Hansen and Lunde
(2006), we follow the convention of using 5-minute returns (see Liu et al. (2015)). And since
the VIX1D is quoted in annualized percentages, we multiply the annualized RV by 100:

v
u Mt
√ uX
2
RVt = 100 × 252 × t rt,i , (3)
i=1

where rt,i is the ith logarithmic return on day t and Mt denotes the number of five-minutes
returns of day t. RVt refers to the realized volatility, and RV
d t to the predicted volatility.

2.3. Realized Volatility Risk Premium

Various studies have shown that a systematic variance risk factor exists (not only) in the
stock market, which leads to a significant risk premium embedded in option prices (see,
e.g., Carr and Wu (2009), Drechsler (2013), Johnson (2017)). This variance risk premium
is the reason why the implied volatility of an asset is usually significantly higher than its
RV. It is defined as the difference between the ex ante risk-neutral and the physical, i.e.
statistical, expectation of the future return variation (see, e.g. Bollerslev et al. (2014)). To
approximate the actual premium paid by investors, we propose an ex post measure for the

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realized premium by using the difference between the ex ante implied volatility and the ex
post measured RV of the same period. We use the RV measure of equation 3 because the
VIX1D and other related indices of the Cboe are calculated as annualized volatilities. This
proxy of the realized volatility risk premium (RVRP) is then defined as follows:

RV RPt ≡ V IX1Dt−1 − RVt . (4)

2.4. RVRP adjusted VIX1D forecasts

Due to the volatility premium, the V IX1Dt−1 is expected to overestimate the RVt . Therefore,
a logical first approach is subtracting a proxy for the VRP of day t from the V IX1Dt−1 to
obtain an adjusted estimator for RVt . We employ three approaches to approximate the ex
ante VRP inherent in the VIX1D. In the first and simplest approach, we use the most recent
RVRP available at time t − 1:

d RV RP = V IX1Dt−1 − RV RPt−1
RV (5)
t

To reduce the influence of potential outliers in the RVRP, the second and third approaches
incorporate the average and median of the RVRP over the last 21 trading days1 :

21
d meanRV RP 1 X
RV t = V IX1Dt−1 − RV RP t−i , (6)
21 i=1

d medRV
RV t
RP
= V IX1Dt−1 − median(RV RPt−1 , ..., RV RPt−21 ). (7)

This time horizon aligns with that of the HAR model and takes into account, as in the first
approach, the non-constant nature of the VRP (Carr and Wu, 2009).

1
To examine the influence of the time horizon of historical values and the robustness of forecast accuracy
more precisely, we also tested shorter periods (see Figure A.6 and A.7) and evaluate them in Section 5. Due
to the novelty of the VIX1D, a longer period is not possible in our study.

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2.5. HAR forecast

The HAR model proposed by Corsi (2009) is one of the most popular and widely used
concepts for modeling the RV. Due to its simplicity and superior performance compared to
traditional parametric and stochastic volatility models, the HAR has emerged as a standard
benchmark model for volatility forecasting.
Inspired by the hypothesis of the heterogeneous market (Müller et al., 1997) and the asym-
metric influence between short-term and long-term volatility (see, among others, Lynch and
Zumbach (2003) and Arneodo et al. (1997)), Corsi (2009) developed the HAR model as a hi-
erarchically additive cascade model. The original model consists of three volatility measures
with different time horizons to capture short-term, medium-term, and long-term informa-
tion reactions. These measures correspond to the normalized sums of daily RVs within their
respective time horizon:

h
(h) 1X
RV t−1 ≡ RV t−j , (8)
h j=1

where h = {1, 5, 22} corresponds to the daily, weekly, and monthly measures.The HAR model
is then defined as

d HAR = c + β (1) RV (1)

RV t−1 + β
(5) (5) (22)
RV t−1 + β (22) RV t−1 + εt . (9)
t

The model parameters β (·) are estimated using ordinary least squares regression. εt are the
innovation terms. To account for the possible presence of heteroscedasticity, we follow Corsi
(2009) and use the Newey and West (1987) covariance correction. We further employ the
rolling window method to better capture potential changes in volatility dynamics. More
precisely, we estimate the model parameters for each out-of-sample forecast anew. Typically,
historical data from several months or years is used for model fitting. Therefore, we choose
a window length of two years, i.e., 522 days2 . For the forecast methods that involve the

2
The window length for model fitting is 500 days. Since up to 22 historical RV values are required for the

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VIX1D, only data from May 13, 2022, onwards can be used due to the novelty of the index.
To ensure better comparability of information content among the forecast methods, we also
employ a much shorter length of one month, i.e., 43 days3 for the rolling window.

2.6. HARX forecasts

Several extensions to the HAR model, commonly referred to as HARX models, have been
proposed in recent years. As mentioned earlier, various studies have shown that incorporating
the VIX leads to improved performance compared to the pure HAR model. To assess the
information content of the VIX1D, we evaluate two extensions of the HAR model for both
the VIX1D and VIX. Following Wang et al. (2020), Kambouroudis et al. (2021), and Gong
et al. (2022), we extend the HAR model by incorporating the index values of both the VIX
and VIX1D:

d HAR−V IX = c + β (1) RV (1)

RV t−1 + β
(5) (5) (22)
RV t−1 + β (22) RV t−1 + β V IX V IXt−1 + εt , (10)
t

d HAR−V IX1D = c + β (1) RV (1)

RV t−1 + β
(5) (5) (22)
RV t−1 + β (22) RV t−1 + β V IX1D V IX1Dt−1 + εt . (11)
t

Gong et al. (2022) have alternatively evaluated the change of the VIX as an additional
exogenous variable and concluded that this method generates better forecast results than
the integration of the index value itself. Similarly, Dutta and Das (2022) also include the
change in the VIX instead of the VIX itself, as the VIX may exhibit weak stationarity in
some periods, while the ∆VIX series can definitely be considered as a stationary process, as
can be seen in the ADF-test results in Table A.1. Therefore, we specify the two additional
HARX models with daily changes of both volatility indices as follows:

d tHAR−∆V IX = c + β (1) RV (1)

RV t−1 + β
(5) (5) (22)
RV t−1 + β (22) RV t−1 + β ∆V IX ∆V IXt−1 + εt , (12)

(h)
RV t−1 components, the actual window length becomes 522 days.
3 (h)
Again, the RV t−1 components require up to 22 historical RVs. The window length for the model fit is
21 days. Thus, 43 days are required.

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 d HAR−∆V
RV t
IX1D (1) (5) (22)
= c+β (1) RV t−1 +β (5) RV t−1 +β (22) RV t−1 +β ∆V IX1D ∆V IX1Dt−1 +εt . (13)

Just like for the simple HAR, we apply a rolling window approach for model fitting to the
HARX models. Again, there is a limitation regarding the availability of historical data for
model fitting, with significantly fewer data points for VIX1D than for VIX. Therefore, we fit
the two HAR models that include the VIX using two different window sizes. First, we use
a longer historical window of 522 trading days. Second, we use a very short window of 43
trading days, corresponding to that used for the HAR-VIX1D and HAR-∆VIX1D models.

2.7. Forecast evaluation

To evaluate which of the models generates the most accurate forecasts, we employ three
commonly used loss functions for volatility forecasting (Patton, 2011): the mean squared error
(MSE), the mean average error (MAE), and the mean absolute percentage error (MAPE):

T
1 X V
2
M SE = RV t − RVt , (14)
T t=1

T
1X V

M AE = | RV t − RVt |, (15)
T i=1

T
V

1 X | RV t − RVt |
M AP E = , (16)
T i=1 RVt

where T refers to the number of trading days examined. In some applications, such as
optimizing trading strategies, it is less important to accurately forecast volatility than to
have a reliable indicator of whether it will increase or decrease. Therefore, we also evaluate
the mean directional accuracy (MDA) of the forecasts:

T
1X
M DA = 1  V  . (17)
T t=1 sgn RV t −RV t−1 =sgn(RV t −RV t−1 )

To examine whether the differences in forecast accuracies of the forecast methods are statis-

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tically significant, we apply the Diebold-Mariano (DM) test (Diebold and Mariano, 1995).
However, since this test can be biased for small samples and we have a relatively small number
of forecast values for the analysis, we also apply a modified version of the DM test (HLN-DM
test) proposed by Harvey et al. (1997). This test considers the loss differentials {dt }Tt=1 with
V
(d) (d)
dt = L(e1,t ) − L(e2,t ), where L(·) is the loss function, and ei,t = RV t − RVt the forecast
errors. We choose L(ei,t ) = |ei,t |p with p = 2, which corresponds to the squared errors.The
test statistic is given by:

r
T + 1 − 2h + T −1 h(h − 1) d
HLN -DM = q , (18)
T γ̂d (0)+2 h−1
P
k=1 γ̂d (k)
T

where d is the observed sample mean of {dt }Tt=1 , h the forecast horizon, and γ̂d (k) the kth
autocovariance of dt . We employ one-sided versions of both tests to assess whether a model
generates significantly better (rather than just significantly different) forecast values. We
test the null hypothesis that the errors of model A are smaller than or equal to the errors of
model B. If this hypothesis can be rejected, it implies that model B generates significantly
better forecasts.
Besides the DM test, the model confidence set (MCS) procedure proposed by Hansen et al.
(2011) is a widely accepted method for comparing volatility models. This procedure involves
a stepwise statistical testing approach to determine the MCS from M , the complete set of
forecasting models or methods. Among the models included in the MCS, the null hypothesis
of equal predictive ability can not be rejected at a certain confidence level α. For technical
details, we refer to Hansen et al. (2011) and Bernardi and Catania (2016). We follow Kam-
bouroudis et al. (2021) and Wang et al. (2020) by choosing α = 0.25 and employing the MSE
and quasi-likelihood (QLIKE) as arbitrary loss functions. The latter is defined as follows:

T    RV 
1X  V

t
QLIKE = ln RV t + . V
(19)
T t=1 RV t

According to Hansen et al. (2011) and Bernardi and Catania (2016), we test the null hypoth-

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esis of equal predictive ability using the following two statistics:

di,j di
tij = q and tij = q f or i, j ∈ M, (20)
vd
ar(di,j ) vd
ar(di )
Pm
where dij,t denotes the loss differential between the model i and j, di,j ≡ m−1 t=1 dij,t is
the relative average loss between models i and j, m is the dimension from the initial set
of models M 0 , di ≡ (m − 1)−1 j∈M \{i} di,j is the sample loss of the ith model relative to
P

the average of all models included in M. vd

ar(dij ) and vd
ar(di ) are estimates of the variances
var(dij ) and (di ), respectively.

3. Data

The maximum period for our analyses is particularly limited because the VIX1D has only
been calculated by Cboe since April 24, 2023, and historical close prices were only retroac-
tively calculated until May 13, 2022, due to the limited data availability of 0DTE options.
For the analysis of movements of the VIX1D within trading days, we use intraday prices on
a 5-minute basis from April 24, 2023, to June 16, 2023, obtained from the Refinitiv Eikon
(2023) database. The daily close prices of all volatility indices are also retrieved from Re-
finitiv Eikon (2023). They cover the period from May 13, 2022, to June 16, 2023, for the
VIX1D and the Cboe S&P 500 volatility indices that capture time horizons of nine days
(VIX9D), three months (VIX3M), six months (VIX6M) and one year (VIX1Y). For the VIX,
daily close prices from May 18, 2020, to June 16, 2023, are used to also fit corresponding
HARX models with a window size of two years. For comparing the characteristics of the six
volatility indices, equal periods are used. The intraday prices of the S&P 500 on a 5-minute
basis, which are needed for calculating the RV, are also from May 18, 2020, to June 16, 2023,
and are retrieved from Tick Data, LLC (2022) and Refinitiv Eikon (2023).
Regarding the interpretation of the VIX1D, it should be noted that “it is designed to provide
real-time information about the expected volatility of the current trading day (today)” (Cboe,
2023a). As described in Section 2.1, only options with the next-term expiry are used to

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calculate the VIX1D after the expiration of near-term options that refer to the current day.
As a result, at the end of the regular trading session, the VIX1D fully converges to the
volatility of the next term, i.e., the next day. Since there are significantly more historical
daily close prices available for the VIX1D than intraday or open prices, we use the close
prices of the VIX1D to forecast the volatility of the S&P 500 of the following trading day.

4. Empirical Results

4.1. Summary statistics

As can be seen in Table 1, the VIX1D is on average lower than the longer-term volatility
indices, which increase with longer time horizons, and thus fits into the typical VIX term
structure. This curve is determined by applying the VIX methodology to SPX options
with various maturities. Its shape reflects both expectations about future volatility and risk
premiums associated with variance risk at different maturities (Johnson, 2017).

RV VIX1D VIX9D VIX VIX3M VIX6M VIX1Y

Min. 3.89 9.96 11.33 13.54 16.75 19.30 21.19
Mean 14.17 21.44 22.46 22.81 24.80 26.55 27.45
Median 12.98 20.01 21.73 22.29 24.56 26.60 27.92
Max. 39.57 47.14 38.86 34.02 34.24 34.16 33.29
Range 35.68 37.18 27.53 20.48 17.49 14.86 12.10
Std. 5.66 6.98 5.54 4.62 3.94 3.48 3.13
Skewness 1.07 0.96 0.32 0.30 0.21 0.09 -0.11
Kurtosis 1.75 0.97 -0.64 -0.58 -0.68 -0.82 -1.17
AR(1) 0.56 0.67 0.92 0.95 0.96 0.96 0.97
PACF(2) 0.26 0.29 0.10 0.08 0.08 0.08 0.11
PACF(3) 0.11 0.09 0.05 0.07 0.04 0.02 -0.00

Tab. 1: Summary statistics of the RV of the S&P 500 and the related Cboe volatility indices with ascending
time horizons from one day to one month with 275 daily observations each from May 13, 2022, to June 16,
2023.

This is accompanied by a stronger variation of the indices as the depicted time horizon
becomes shorter. The VIX1D exhibits a higher variation and, unlike the other indices, a
positive kurtosis. This lower volatility of the longer-term indices stems primarily from the
overlapping time horizons of their daily values. Therefore, they also exhibit a significantly
higher autocorrelation. The still relatively high autocorrelation of the VIX1D is directly

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related to volatility clustering. Figure 1 shows the partial autocorrelation, which is significant
up to a lag of two days.

Fig. 1: PACF of the VIX1D.

4.2. Intraday pattern

The VIX1D is calculated and published by Cboe during regular trading hours, usually from
9:31 a.m. to 4:15 p.m. ET (Cboe, 2023c). The intraday prices suggest that it tends to
increase within this period and is generally lower on Mondays compared to other weekdays.
This pattern is visualized in Figure 2.

Fig. 2: Intraday pattern of the average VIX1D from 2023-04-24, to 2023-06-16.

It is also evident that there are pronounced and on average negative “overnight” jumps from
the closing prices to the opening prices of the following days, especially over the weekend.

4.3. Correlations

Since the volatility indices all refer to the S&P 500 as underlying and are calculated using
very similar methodologies, a corresponding positive correlation between them is expected
and has been observed. Figure A.2 in the Appendix visualizes the correlation matrix. In

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addition to the closing prices of the volatility indices, their first differences and logarithmic
returns are also included to capture daily changes. Furthermore, the correlations with the log
returns of the S&P 500 on day t, as well as t−1 and t+1, to check in a simplified way whether
the asymmetry effect (often synonymously referred to as the “leverage effect” proposed by
Black (1976)) or volatility feedback effect occurs. We refer to Sun and Wu (2018), Bekaert
and Wu (2000), and Engle and Ng (1993) for discussions on the nature and potential causes
of the asymmetric relationship between volatility and stock returns.
While the correlation coefficients of the longer-term volatility indices are mostly above 0.9
or 0.8 for both their level and daily changes, the correlation of the VIX1D with the other
indices is significantly lower. Although the correlation with the close values of the other
volatility indices ranges from 0.71 to 0.82, the coefficients for the daily changes are only
between 0.39 and 0.47. Figures 3 and A.3 exemplify the different dynamic of the VIX1D by
its highly variable difference from the VIX and VIX9D. In line with the statistics in Table 1,
it is evident in the two charts that while the VIX1D is generally lower on average, there are
numerous days where it surpasses the longer-term indices for a short period.

Fig. 3: Daily difference between the VIX1D and the VIX.

Regarding the S&P 500, the VIX1D also exhibits a negative correlation, but it is signifi-
cantly weaker compared to the other indices. While their correlation values range from -0.56
(VIX9D) to -0.78 (VIX6M) for their daily changes, the correlation with VIX1D differences
and returns is only -0.26. It should be noted that this strong negative relationship between
S&P 500 log returns and implied volatilities applies almost exclusively to changes within the

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same period. The correlation coefficients for lagged or future S&P 500 log returns are close
to zero. Figure 4 illustrates the fundamentally asymmetric relationship between the S&P
500 and the VIX1D, highlighting the extreme jumps of the VIX1D.

Fig. 4: Daily levels of the VIX1D (left axis) and the S&P 500 (right axis).

4.4. In-sample volatility modeling

The in-sample analysis of the different HAR(X) specifications refers to the longest period
constrained by the data availability of VIX1D from May 2022 to June 2023. It shows how
well the various model specifications capture the volatility dynamics of the S&P 500. The
forecast methods discussed in Section 2.4 are not included as these model-free concepts do
not require parameter estimation. The results in Table 2 clearly show that the HAR-VIX1D
model has the highest R2 value. It can explain over 64% of the variability in RV. This
is a significant improvement, with a 62% increase in explanatory power compared to the
pure HAR model and a 31% and 54% increase compared to the HAR-VIX and HAR-∆VIX
models, respectively.

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 Method HAR HAR-VIX HAR-VIX1D HAR-∆VIX HAR-∆VIX1D
c 2.1734* -4.5120** -0.6154 2.0080* 1.6160*
(0.8641) (1.3823) (0.6167) (0.7746) (0.6536)
β (1) 0.2806*** 0.1878** 0.0631 0.2584*** 0.3587***
(0.0700) (0.0624) (0.0532) (0.0763) (0.0658)
β (5) 0.3189** -0.0496 -0.0330 0.3434** 0.3310***
(0.1008) (0.1113) (0.0762) (0.1076) (0.0864)
β (22) 0.2307* -0.0856 0.1093 0.2421** 0.1840**
(0.0903) (0.0998) (0.0764) (0.0835) (0.0671)
β V IX 0.7880***
(0.1258)
β V IX1D 0.5934***
(0.0521)
β ∆V IX 0.6361***
(0.1765)
β ∆V IX1D 0.3627***
(0.0493)
R2 (%) 39.80 49.01 64.35 41.72 51.93

Tab. 2: In-sample forecast evaluation from 2022-05-16, to 2023-06-16 (2022-05-17, to 2023-06-16 for regres-
sions with first differences). Values in parentheses indicate the heteroskedasticity-robust standard errors
based on the Newey and West (1987) covariance correction. *, **, and *** denote statistical significance at
10%, 5%, and 1% levels, respectively.

While all three historical volatility components are significant in the simple HAR, only the
VIX1D is significant in the HAR-VIX1D model. This suggests that VIX1D already con-
tains (more than) the relevant information that would otherwise be captured by the three
(1) (5) (22)
historical volatility estimators RV t−1 , RV t−1 , and RV t−1 . And the higher R2 compared to
the equivalent models that include the VIX indicate that the VIX1D also has a much higher
information content regarding future 1-day volatility than the VIX. The highly significant
value of 0.59 for β V IX1D further reinforces the finding that the VIX1D generally overestimates
future RV and needs to be adjusted for an appropriate volatility forecast.

4.5. Out-of-sample volatility forecasts

Comparing the out-of-sample forecast performance of the different forecasting methods is

much more important and informative for analyzing the information content of the VIX1D.
In addition to the pure HAR and HARX models that include the VIX, we also use the
naı̈ve estimator as a benchmark for the forecasts that integrate the VIX1D. As described in
Section 2.6, we use two constant window lengths for model fitting for each of the HAR, HAR-
VIX, and HAR-∆VIX models. The models marked with † include weighting parameters
estimated based on the past 522 days to improve forecast accuracy. All HAR(X) models

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that are not marked with † were estimated using shorter rolling windows of 43 days to use
approximately the same limited amount of historical data as the four methods that only
include the (adjusted) VIX1D.
Table 3 lists the forecast accuracy of the 13 methods. They are ranked in ascending order
based on their forecast MSE values.

Rank Method MSE MAE MAPE MDA

1 VIX1D-meanRVRP 17.09 3.05 22.66% 67.59%
2 VIX1D-medRVRP 17.31 3.08 23.25% 67.19%
3 HAR-VIX† 18.43 2.89 20.86% 69.44%
4 HAR-VIX1D 18.71 3.14 23.61% 69.05%
5 HAR-∆VIX† 19.89 3.07 23.06% 67.46%
6 HAR† 20.66 3.17 23.88% 67.46%
7 HAR 24.61 3.51 26.10% 65.48%
8 HAR-∆VIX1D 24.69 3.43 25.48% 65.87%
9 HAR-VIX 24.78 3.57 26.78% 61.11%
10 HAR-∆ VIX 26.93 3.57 26.25% 63.89%
11 naı̈ve 28.90 3.77 27.89% N/A
12 VIX1D-RVRP 31.73 4.14 31.71% 57.71%
13 VIX1D 69.51 7.26 60.87% 54.55%

Tab. 3: Out-of-sample forecast evaluation from 2022-06-15, to 2023-06-16, thus covering 253 days. The
forecast methods are ranked according to the MSE. † indicates models optimized using two years of historical
data for the model fit.

Firstly, it should be noted that the VIX1D itself generated by far the most inaccurate volatil-
ity forecasts. Its MSE, MAE, and MAPE are more than double those of the other forecast
methods. On average, the VIX1D was 60.74% higher than the RV. Only in terms of MDA
does it show a relatively good result with 54.55%. These results indicate that the VIX1D,
without adjustment, does not appear suitable for volatility forecasts. Even when subtracting
the RVRP of the previous day from the VIX1D, the forecast values are still very inaccurate.
In contrast, all other forecast methods are more accurate than the naı̈ve estimator. The most
accurate volatility forecasts in terms of MSE were generated when the mean or median of the
RVRP of the past 21 days was subtracted from the VIX1D. The MSE of these two methods
is at least 1.34 or 1.12 lower than those of the other models. Surprisingly, they are even
better regarding MSE than the HAR(X)† models, which were optimized with much more
historical data. Compared to the models that use 43 days and omit the VIX1D, their MSE is
lower by at least 7.52 and 7.30, respectively. They also generated highly accurate directional

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forecasts in terms of MDA that are comparable to those of the benchmark models. They
could correctly predict whether volatility would rise or fall for 68% of the days. Since RV
fell on 49.8% of the days compared to the previous day and rose on 50.2% of the days in
the analyzed period, the high directional accuracy is not attributable to a short-term trend
in combination with a misspecification of the forecasting methods. Regarding the MAE and
MAPE, the results are very similar. However, regarding these two loss functions, the HAR-
VIX† model, which requires a significantly larger historical data set, is slightly more accurate.
The differences, however, are minor. The fact that the HAR-VIX† model is also among the
top three models in terms of MSE confirms that including implied volatility in addition to
historical RV measures leads to more accurate RV forecasts. Furthermore, it is evident that
the same HAR(X) specifications, which were optimized with significantly fewer historical
data, generated significantly less accurate predictions. It is also evident in this regard that
while the HAR-VIX† generates better forecasts than the HAR-VIX1D, and the HAR-∆VIX†
is more accurate than the HAR-∆VIX1D, the results are reversed when a comparable period
of historical data is used for model fitting.
The added value of a longer historical data period for volatility forecasting is also evident
when comparing the different methods of adjusting the VIX1D using the RVRP. The mean
or median of the RVRP over the past 21 days is a much better proxy for the VRP contained
in the VIX1D than just the previous value of the RVRP. Normalizing the RVRP based on
the past 21 days improved the forecast accuracy of the VIX1D-RVRP method by 54% in
terms of MSE, and by 23-63% in terms of MAE, MAPE, and MDA. Figures A.6 and A.7
in the Appendix show the influence of the time horizon used for normalizing the RVRP on
MSE and MAE. It is clearly visible that the forecast error decreases with increasing window
length and already reaches levels comparable to those of the benchmark models that require
much more historical data, starting at a window length of just four days.
In the detailed analysis of the forecast values, it is also evident that the adjusted VIX1D,
not only captured the overall level, but also the extreme values of the RV more accurately.

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The minima and maxima in Table A.2 show that the HAR and HARX that do not include
the VIX1D did not capture the whole range of RV. The very good coverage and adjustment
of VIX1D-meanRVRP to current volatility levels, both in periods of low and high volatility,
can also be seen in Figure 5.

Fig. 5: Out-of-sample forecast values of the VIX1D-meanRVRP and the actual RV from 2022-06-15, to 2023-
06-16, thus covering 253 days.

The DM and HLN-DM tests largely confirm the superiority of the VIX1D-meanRVRP and
VIX1D-medRVRP over the conventional forecasting models. The results of both tests are
practically identical and listed in Tables A.3 and A.4. Both tests confirm that the HAR(X)
models optimized with two years of historical data are significantly better than those HAR(X)
that use only data from the last 43 days. When comparing all methods that include only
a short period of historical data, both tests confirm a highly significant superiority of the
VIX1D adjusted by the normalized RVRP. However, the superiority of these two methods over
HAR† , HAR-VIX† , and HAR-∆VIX† is not confirmed at the usual significance levels. They
generate better results than these models with a probability ranging from 66.31% to 85.84%.
The MCS procedure proposed by Hansen et al. (2011) further supports the previous findings.
Both when using the MSE and the QLIKE as loss functions, the VIX1D-meanRVRP and
VIX1D-medRVRP are included in the MCS. Accordingly, their out-of-sample forecasts are
at least as good as those of the benchmark models that require significantly more historical
data. The results of the corresponding tests are summarized in Table 4.

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 Forecast method RankR,M ti,j p-valueR,M Rankmax,M ti p-valuemax,M Loss
MSE: 9 eliminations
VIX1D-meanRVRP 1 -0.8951 1.000 1 -0.5213 1.000 17.09
VIX1D-medRVRP 2 -0.5860 1.000 3 0.6913 0.8790 17.31
HAR-VIX† 3 0.3059 0.9436 2 0.5213 0.9386 18.43
HAR-VIX1D 4 0.7735 0.6476 4 1.0203 0.6980 18.71
QLIKE: 7 eliminations
HAR-∆VIX 1 -0.3919 1.0000 1 -0.0808 1.0000 6.2881
VIX1D-meanRVRP 2 -0.1191 1.0000 2 0.0808 1.0000 6.2911
HAR† 3 -0.0849 1.0000 5 0.6796 0.9678 6.2925
HAR-VIX1D 4 -0.0489 1.0000 3 0.1841 0.9998 6.2927
HAR-VIX† 5 -0.0086 1.0000 4 0.4251 0.9956 6.2938
VIX1D-medRVRP 6 0.3290 0.9694 6 0.9158 0.8930 6.3055

Tab. 4: Model confidence sets based on the MSE and QLIKE criterion. ti,j and ti denote the t-statistics
proposed by Hansen et al. (2011) with corresponding p-values of the test statistic in columns four and seven.
Both sets refer to the out-of-sample forecasts from 2022-06-16 to 2023-06-16.

5. Discussion

The results of the out-of-sample forecasts as well as the analysis of the in-sample HAR(X)
models clearly indicate that the inclusion of the VIX1D has led to significantly improved
modeling and forecasting of the 1-day volatility of the S&P 500. Consequently, the VIX1D
seems to contain more information in this regard than the VIX and the previous RV. This
finding aligns with previous studies highlighting the significant value of incorporating implied
volatility in volatility forecasting (e.g., Liang et al. (2020), Busch et al. (2011)). However,
our study is among the first to examine the potential of VIX1D, thus complementing exist-
ing research that focuses on analyzing the information content of the VIX and other implied
volatility measures (e.g., Dutta and Das (2022), Kambouroudis et al. (2021) and Corrado and
Miller (2005)). The fact that the VIX1D is generally lower and more volatile than longer-
term volatility indices while being higher than actual RV is consistent with prior studies on
the volatility term structure and VRP (see, e.g., Johnson (2017) and Yang and Chen (2021)).
Surprisingly, the VIX1D has, on average, overestimated the RV by as much as 60%. There-
fore, adjusting the VIX1D to obtain meaningful volatility forecasts is crucial. Subtracting the
mean or median of the past four days’ RVRP as a proxy for the VRP inherent in the VIX1D
already significantly enhances forecast accuracy. The highest accuracy was achieved when in-
corporating the RVRP of the past 21 days. Future studies with an extended period of VIX1D

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data available will need to explore whether further extending this window is beneficial. By
employing a rolling window approach, we directly account for the non-constant nature of the
VRP (Carr and Wu, 2009). Thus, the VIX1D adjusted for the VRP represents a straight-
forward, model-free, and highly effective volatility forecast for the S&P 500. In contrast
to conventional parametric methods such as HAR(X) or variations of the Generalised Au-
toregressive Conditional Heteroscedasticity (GARCH) model proposed by Bollerslev (1986),
very few historical data are required. This is particularly advantageous when considering
historical intraday prices, which are cost-intensive. Additionally, forecasts using the VIX1D
can be generated more quickly, as no model parameters need to be estimated.
A restriction of our analysis is the limited availability of historical data for the VIX1D,
which partially limits the significance and robustness of the results. However, the analyses of
in-sample modeling and out-of-sample forecasts, given the same constrained data, strongly
indicate that future studies will confirm the superior information content of the VIX1D.
Furthermore, the selection of tested benchmark models is naturally limited. Models that
have shown better forecasts than the benchmark models we used (e.g., Corsi and Renò
(2012), Patton and Sheppard (2015) and Bollerslev et al. (2018)) have the disadvantage of
being more difficult to implement and typically require more historical data. Moreover, the
VIX1D specifically pertains to the U.S. stock market and, to our knowledge, is currently
the only publicly available 1-day volatility estimator based on option prices. Compared
to generalized methods like the HAR(X) and GARCH(X), which can be applied to other
financial markets and asset classes, this is a disadvantage. However, given that numerous
studies have detected volatility spillover effects among different market sectors and identified
the VIX as an influential factor (see, e.g., Buncic and Gisler (2016), Badshah (2018), Geng
and Guo (2022) and Gong et al. (2022)), it is reasonable to assume that the VIX1D can also
improve volatility forecasts for other market sectors, such as commodities, exchange rates,
and bonds. Regarding the distinct intraday pattern with an upward trend during regular
trading hours, we refer to the work of Fernandez-Perez et al. (2016), who found a contrary

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trend for the VIX. However, these two patterns are only partially comparable since we analyze
a different period for the VIX1D.

6. Conclusion

Our study complements previous research that has examined the value of the VIX and other
implied volatility indices in forecasting volatility across various financial markets and asset
classes. We are among the first to evaluate the characteristics and information content of the
recently introduced VIX1D by the Cboe. In the analyzed period from June 15, 2022, to June
16, 2023, the VIX1D at close overestimated the actual daily RV of the next day of the S&P
500 by approximately 60%, likely due to the inherent VRP. By adjusting the VIX1D using
a simple and directly observable proxy for the VRP, we significantly improved the forecast
accuracy, which is comparable to, and often even better than, the tested HAR(X) models.
The average or median of the realized VRP over the past 21 days proved to be a suitable
proxy, with data from the past four days already yielding very good results. The adjusted
VIX1D is a model-free and easy-to-implement estimator for the 1-day volatility of the S&P
500, which is at least as good as traditional HAR(X) models in terms of forecast accuracy
and much simpler to implement.
Thus, we confirm with some limitations that the VIX1D renders traditional volatility models
(partly) obsolete for forecasting the volatility of the U.S. stock market. The main limitation
is that due to the novelty of the VIX1D, we could only analyze a relatively small amount of
data spanning just over a year. Future studies will determine if our findings remain robust
with extended data sets and in different market conditions. Additionally, the number of
benchmark models we examined could be extended. More complex models that incorporate
additional exogenous variables may generate more accurate forecasts. However, such models
are more difficult to implement and typically require much more historical data.
Given these considerations, we recommend the adjusted VIX1D as a forecasting method for
the volatility of the S&P 500, both for academic studies and practical applications. Due

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to the high relevance of 1-day volatility, the applications range from risk management and
asset pricing to volatility trading. As numerous previous studies have also identified volatil-
ity spillover effects and the cross-asset-class predictive power of the VIX, the VIX1D could
provide added value also in forecasting the volatility of other market sectors such as com-
modities, exchange rates, and bonds. In this regard, there is also promising potential for
further investigations.

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Electronic copy available at: https://ssrn.com/abstract=4505785

Appendix

Fig. A.1: GoldmanSachs (2023): Distribution of SPX notional volume by maturity.

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 Test variant VIX1D VIX9D VIX VIX3M VIX6M VIX1Y ∆VIX1D ∆VIX9D ∆VIX ∆VIX3M ∆VIX6M ∆VIX1Y
ADF -1.13 -1.02 -0.95 -0.97 -1.05 -1.19 -13.68*** -13.01*** -13.10*** -12.60*** -12.34*** -12.17***
ADF drift -4.78*** -2.50 -1.76 -1.41 -1.13 -0.62

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ADF drift & trend -3.72** -3.21* -3.03 -2.77 -2.55

Tab. A.1: ADF, max. lag 12, BIC. test-statistic für gamma reported, *, **, and *** denote statistical significance at 10%, 5%, and 1% levels,
respectively. The null hypothesis of the ADF test is that the series has a unit root.

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 Fig. A.2: Correlation matrix.

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 Fig. A.3: Daily difference of the VIX1D and the VIX9D.

Fig. A.4: Daily logarithmic returns of the S&P 500 and contemporaneous first differences of the VIX1D.

Fig. A.5: Daily RVRP and its median.

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 Rank Method Min Max Mean Median Range
actual RV 3.89 39.57 13.80 12.68 35.68
1 VIX1D-meanRVRP 3.37 40.08 13.66 12.25 36.71
2 VIX1D-medRVRP 2.84 40.23 13.93 12.64 37.39
3 HAR-VIX† 5.03 26.19 13.09 12.39 21.16
4 HAR-VIX1D 5.41 35.22 14.08 13.24 29.81
5 HAR-∆VIX† 6.84 26.57 13.80 13.58 19.73
6 HAR† 6.89 28.70 13.82 13.21 21.82
7 HAR-∆VIX1D 5.80 36.20 13.98 13.33 30.39
8 HAR 6.17 37.50 14.09 13.47 31.32
9 HAR-VIX 3.44 32.73 13.63 13.21 29.29
10 naı̈ve 3.89 39.57 13.86 12.70 35.68
11 HAR-∆VIX 4.74 36.81 13.86 13.27 32.07
12 VIX1D-RVRP -1.69 40.29 13.76 12.72 41.98
13 VIX1D 9.96 47.14 21.01 19.31 37.18

Tab. A.2: Range of the out-of-sample forecast values and the actual RV from 2022-06-15, to 2023-06-16, thus
covering 253 days. The forecast methods are ranked according to the MSE. † indicates models optimized
using two years of historical data for the model fit.

Fig. A.6: Impact of the window size of historical RVRP values to adjust the VIX1D on the MSE.

Fig. A.7: Impact of the window size of historical RVRP values to adjust the VIX1D on the MAE.

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 Forecast method naı̈ve HAR HAR† HAR- HAR- HAR- HAR- HAR- HAR- VIX1D VIX1D- VIX1D-
VIX VIX† ∆VIX ∆VIX† VIX1D ∆VIX1D RVRP med21RVRP
HAR -1.6638
(0.0481)
HAR† -3.9983 -2.4922
(0.0000) (0.0063)
HAR-VIX -1.4852 0.1184 2.1337
(0.068) (0.5471) (0.9836)
HAR-VIX† -4.2463 -3.6396 -2.7967 -3.4443
(0.0000) (0.0001) (0.0026) (0.0003)
HAR-∆VIX -0.6277 1.8786 2.9325 1.2255 4.0334
(0.2651) (0.9699) (0.9983) (0.8898) (1.0000)
HAR-∆VIX† -3.8975 -2.8979 -1.3942 -2.6948 2.0733 -3.5393
(0.0000) (0.0019) (0.0816) (0.0035) (0.9809) (0.0002)

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HAR-VIX1D -2.0105 -2.1868 -0.6584 -2.4913 0.0978 -2.6222 -0.4167
(0.0018) (0.0144) (0.2552) (0.0064) (0.5390) (0.0044) (0.3385)
HAR-∆VIX1D -1.0953 0.0331 1.2494 -0.0383 2.0737 -0.9506 1.6096 2.7679
(0.1367) (0.5132) (0.8942) (0.4847) (0.9809) (0.1684) (0.9463) (0.9972)
VIX1D 6.8752 7.6942 8.1173 7.5386 8.4133 6.7445 8.2177 10.1920 7.9724
(1.0000) (1.0000) (1.0000) (1.0000) (1.0000) (1.0000) (1.0000) (1.0000) (1.0000)
VIX1D-RVRP 0.6157 1.4957 2.8746 1.5255 2.8746 0.9658 2.5680 3.8923 1.8137 -7.4033
(0.7310) (0.9326) (0.9980) (0.9364) (0.9980) (0.8329) (0.9949) (1.0000) (0.9651) (0.0000)
VIX1D- -3.0657 -2.1627 -0.9971 -2.2431 -0.3479 -2.4100 -0.7725 -0.6651 -2.2422 -13.2870 -4.2462
med21RVRP (0.0011) (0.0153) (0.1594) (0.0124) (0.3640) (0.0080) (0.2199) (0.2530) (0.0125) (0.0000) (0.0000)
VIX1D- -3.1553 -2.2272 -1.0730 -2.3387 -0.4208 -2.4661 -0.8475 -0.7902 -2.3274 -12.9440 -4.3546 -0.6678
mean21RVRP (0.0008) (0.0130) (0.1416) (0.0097) (0.3369) (0.0068) (0.1983) (0.2147) (0.0099) (0.0000) (0.0000) (0.2521)

Tab. A.3: Pairwise one-sided DM-Test on squared errors. DM stat. and (p-value). Forecast evaluation. 2022-06-15 until 2023-06-16. H1: the first

Electronic copy available at: https://ssrn.com/abstract=4505785

forecast (method in the first column) is more accurate than the second forecast (method in the first row).
 Forecast method naı̈ve HAR HAR† HAR- HAR- HAR- HAR- HAR- HAR- VIX1D VIX1D- VIX1D-
VIX VIX† ∆VIX ∆VIX† VIX1D ∆VIX1D RVRP med21RVRP
HAR -1.6605
(0.0490)
HAR† -3.9904 -2.4872
(0.0000) (0.0068)
HAR-VIX -1.4823 0.1182 2.1295
(0.0700) (0.5470) (0.9829)
HAR-VIX† -4.2379 -3.6324 -2.7912 -3.4375
(0.0000) (0.0002) (0.0028) (0.0003)
HAR-∆VIX -0.6264 1.8749 2.9267 1.2231 4.0254
(0.2658) (0.9690) (0.9981) (0.8888) (1.0000)
HAR-∆VIX† -3.8898 -2,8922 -1.3914 -2.6894 2.0692 -3.5323
(0.0001) (0.0021) (0.0827) (0.0038) (0.9802) (0.0002)

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HAR-VIX1D -2.9048 -2.1825 -0.6571 -2.4863 0.0976 -2.6170 -0.4159
(0.0020) (0.0150) (0.2560) (0.0068) (0.5388) (0.0047) (0.3389)
HAR-∆VIX1D -1.0932 0.0330 1.2469 -0.0382 2.0696 -0.9587 1.6064 2.7624
(0.1377) (0.5131) (0.8932) (0.4848) (0.9802) (0.1693) (0.9453) (0.9969)
VIX1D 6.8616 7.6789 8.1012 7.5237 8.3967 6.7312 8.2015 10.1710 7.9566
(1.0000) (1.0000) (1.0000) (1.0000) (1.0000) (1.0000) (1.0000) (1.0000) (1.0000)
VIX1D-RVRP 0.6144 1.4927 2.8689 1.5225 2.8689 0.9639 2.5629 3.8846 1.8101 -7.3887
(0.7303) (0.9316) (0.9978) (0.9354) (0.9978) (0.8320) (0.9945) (0.9999) (0.9643) (0.0000)
VIX1D- -3.0596 -2.1585 -0.9951 -2.239 -0.3472 -2.4053 -0.7710 -0.6638 -2.2377 -13.2610 -4.2378
med21RVRP (0.0012) (0.0159) (0.1603) (0.0130) (0.3644) (0.0084) (0.2207) (0.2537) (0.0131) (0.0000) (0.0000)
VIX1D- -3.1491 -2.2228 -1.0709 -2.3341 -0.4200 -2.4612 -0.8459 -0.7886 -2.3228 -12.9190 -4.3460 -0.6664
mean21RVRP (0.0009) (0.0136) (0.1426) (0.0102) (0.3374) (0.0073) (0.1992) (0.2155) (0.1049) (0.0000) (0.0000) (0.2529)

Tab. A.4: Pairwise one-sided HLN-DM-Test on squared errors. DM stat. and (p-value) Forecast evaluation. 2022-06-15 until 2023-06-16. H1: the first

Electronic copy available at: https://ssrn.com/abstract=4505785

forecast (method in the first column) is more accurate than the second forecast (method in the first row)