The chart shows IPD H/L forecasts applied to predicting monthly volatility* for the Hang Seng  – a highly volatile Hong Kong stock market index shown with the green line in the chart.

IPD H/L forecasts are mapped onto monthly volatility (blue line) using statistical regression. All forecasts (red line) are out-of-sample.

*calculated as the sum of squared daily returns

Practitioners know exponential smoothing and related methods are incapable of tracking spikes such as seen with Hang Seng volatility.

IPD H/L forecasts provide a more reliable basis for predicting volatility than exponential smoothing, GARCH, and ARCH models.