UQO Working Paper No. 7· v2.0· November 2026· 87 pages
Option-Implied Information about Future Variance and Market Stress: Correctly Timed Evidence from 69 Liquid US Underlyings, 2010–2025
The implied volatility surface carries information about future variance that HAR-RV does not (within-ticker R² 0.319 → 0.360; Clark–West significant for 45 of 67 tickers), but it does not lower out-of-sample loss: the median MSE ratio to HAR-RV is 1.001 and the QLIKE ratio 1.284.
The paper measures two things on one panel of 49 large stocks, 17 ETFs and three indices over 2010–2025, with strictly post-origin targets, an out-of-sample design without look-ahead and inference that accounts for nesting, overlap and the number of tests. The claim that the implied-to-realized correlation ratio predicts market stress is not supported once timing and multiple testing are respected. Return predictability, price magnets and tree learners are reported only as exploratory results.
Simon-Pierre Boucher — contact@spboucher.ai
0.319 → 0.360
within-ticker in-sample R² for next-day realized variance when five surface features are added to HAR-RV, on a common sample of 119,093 ticker-days; the gain is positive for every one of the 69 tickers (median +13.1%)
1.001 / 1.011
median out-of-sample MSE ratio of the surface-augmented model to HAR-RV for next-day and 5-day variance, on 67 tickers with rolling 500/250-day windows: no loss reduction
6 vs 19
tickers for which the Diebold–Mariano test favours the augmented model versus HAR-RV; after a Holm adjustment no ticker is improved and 9 are worse
1.284
median QLIKE ratio: the augmented model is worse for 38 tickers and better for none
45 of 67
tickers for which the Clark–West statistic exceeds its 5% critical value: the surface contains nested-model information that estimation noise prevents from becoming a forecasting gain
+4.20 pts, t = 2.50
higher 10-day stress probability per standard deviation of the implied-to-realized correlation ratio (3,678 days); Holm p = 0.10, Romano–Wolf p = 0.37 and episode-bootstrap intervals covering zero leave the claim unsupported
18.8–27.8%
share of the 20-day forecast-error variance of realized variance attributed to implied-volatility shocks in a bivariate VAR, depending on the ordering; implied volatility Granger-causes realized variance in every ticker, the reverse in 31.9%
Abstract
How much does the implied volatility surface add to the HAR-RV model, and does the gap between option-implied and realized correlation among S&P 500 constituents predict market stress? On a 2010–2025 panel of 69 liquid US underlyings (275,448,124 option records, 5-minute prices), with strictly post-origin targets and training-window winsorization, the surface raises the within-ticker in-sample R² for next-day variance from 0.319 to 0.360 and carries nested-model information (Clark–West) for 45 of 67 tickers, but it does not lower out-of-sample loss: the median MSE ratio to HAR-RV is 1.001, the QLIKE ratio 1.284, and no ticker’s next-day forecast improves after a Holm adjustment. A one-standard-deviation higher implied-to-realized correlation ratio is associated with a 4.20 percentage-point higher 10-day stress probability (t = 2.50), but Holm and Romano–Wolf p-values of 0.10 and 0.37 and episode-bootstrap intervals that cover zero leave the stress claim unsupported. Return predictability, price magnets and tree learners are reported as exploratory results.
JEL: G12, G13, G14, G17, C53, C58
Key Results
Information separated from forecasting gain
On one panel of stocks, ETFs and indices, the surface is evaluated in sample and out of sample under MSE and QLIKE with Clark–West, Giacomini–White and model-confidence-set inference. It finds information without loss reduction; the single 30-day at-the-money level is the only augmentation that stays in the 90% model confidence set for almost every ticker under both losses.
A correctly timed design
Every target is strictly post-origin (forward realized variance over days t+1 to t+h; stress events on days t+1 to t+h), and winsorization thresholds are estimated on each 500-day training window. Both features correct choices of earlier versions that used information not available at the forecast origin.
The stress claim tested and not established
With the post-origin definition on the full 2010–2025 series, the coefficients at 5, 10 and 20 days are 1.77, 4.20 and 3.78 percentage points (t-statistics 1.55, 2.50 and 1.73); a stress definition based on realized market returns gives negative and insignificant coefficients. The ratio is reported as a candidate indicator only.
Stability across periods
The in-sample gain of the surface is present in each of nine subperiods and sixteen leave-one-year-out estimations, while the out-of-sample loss ratio stays between 0.958 and 1.116 across subperiods.
Earlier claims reported as exploratory, with their decisive tests
No return predictor survives a family-wise adjustment; the only long-short strategy with a factor alpha after costs draws 89.5% of its cumulative return from five names and has a deflated Sharpe ratio probability of 0.00; price moves toward the maximum-open-interest strike are indistinguishable from a permutation null; no tree learner beats HAR-RV.
Peer review
This paper went through a multi-referee review: 6 referee reports and 98 review items. The version presented on this page is the revised manuscript. Scores are on a 0–100 scale and are a diagnostic of the manuscript, not an acceptance probability.
Score after revision
65.3/100
53.0 before review · +12.3
Review dated November 4, 2026
- Review decision
- major revision
- Scientific integrity
- PASS
- Reproducibility
- R2partially reproduced
- Maturity
- Bone revision cycle from submission
- Referee reports
- 6
- Review items
- 98
Scores by dimension
Before reviewAfter revision
- Originality & contribution45.5 → 48.0
- Scientific rigor53.7 → 72.0
- Identification & methodology53.3 → 68.0
- Data & reproducibility47.5 → 58.0
- Robustness & validation62.0 → 78.0
- Writing65.3 → 74.0
- Figures & tables59.7 → 76.0
- Literature positioning57.7 → 74.0
Revised manuscript87 pages9 figures53 tables9 equations104 references34,349 words
What the review changed
Peer review refocused the paper on two questions, future variance and market stress, and corrected the timing of the targets, the stress indicator and the winsorization, all of which had used information not available at the forecast origin. The out-of-sample forecasting gain and the stress result of the earlier version did not survive; return predictability, price magnets and machine learning were moved to an exploratory appendix, and the paper was retitled.
- Out-of-sample MSE ratio to HAR-RV of 0.967 with 14 tickers better and none worse (30 tickers, full-sample winsorization) → 1.001 with 6 better and 19 worse on 67 tickers (none better after Holm): information without a loss gain
- Stress prediction t-statistics of 3.27, 4.13 and 2.33 → 1.55, 2.50 and 1.73 with a post-origin stress definition; Holm p-values 0.49, 0.10 and 0.42 and bootstrap intervals covering zero: claim not supported
- “Evidence from 3.8 billion option contracts” → 275,448,124 option records actually enter the panel; the larger figure describes the data lake and was removed from the title
- Return predictability, open-interest price magnets and tree learners as research questions → an exploratory appendix; no return predictor survives a family-wise adjustment
- In-sample gain restated on a within-ticker basis: R² for next-day variance 0.319 → 0.360
- VIX series completed for every ticker-day; the stress sample now covers 2010–2025 (3,678 days) rather than starting in 2016
Limitations stated in the paper
- The 69 underlyings are a fixed list chosen for liquidity in 2025, not a point-in-time screen, so survivorship bias affects the exploratory return results in particular.
- The stress indicator is defined from the VIX, which is a function of the same index implied volatility that enters the correlation ratio; the alternative based on realized returns gives no result.
- The revision-specific inputs are derived from a licensed data lake and are not committed, so a replication without lake access reproduces the legacy files only.
- An earlier version reporting the withdrawn weekly return results is still distributed on SSRN; the sample covers a single market and sixteen years dominated by an equity bull market.
Data
End-of-day option records
Option chains licensed from FirstRate Data for 69 underlyings from 4 January 2010 to 31 December 2025: 434,957,531 records exist for these underlyings and 275,448,124 pass the feature filters (positive ask, 7 to 180 days to expiration).
Analysis panel
264,383 ticker-days for 49 large-capitalization stocks, 17 ETFs and three cash indices (SPX, NDX, RUT), combining daily option features with realized measures from 5-minute bars. The list is fixed and chosen for liquidity, not by a point-in-time screen.
VIX and correlation series
The daily VIX close is available on every ticker-day of the panel; the implied correlation is an equal-weight equi-correlation on 29 S&P 500 constituents, compared with a 22-day pairwise realized correlation over 3,678 days.
Methodology
HAR-RV against surface-augmented models
HAR-RV is augmented with five surface features (30- and 90-day at-the-money levels, 25-delta skew and two wing-based proxies); pooled within-ticker estimates use Driscoll–Kraay standard errors.
Out-of-sample evaluation without look-ahead
Rolling 500/250-day windows on 67 tickers with training-window winsorization, MSE and QLIKE losses, Diebold–Mariano, Clark–West and Giacomini–White tests, model confidence sets and a Monte Carlo of the nested comparison under the null.
Implied correlation and stress regressions
The log ratio of implied to realized correlation predicts VIX-defined stress events within 5, 10 and 20 days, with Newey–West standard errors, an episode bootstrap and an alternative stress definition based on realized market returns.
Multiple-testing control
Holm and Romano–Wolf adjustments over the nine headline stress tests and Holm adjustment over tickers for the forecast comparisons.
Lead–lag relations and robustness
Per-ticker heteroskedasticity-robust Granger tests and a bivariate VAR variance decomposition under both orderings with bootstrap bands; nine subperiods, leave-one-year-out estimation, VIX regimes and minimum detectable effects.
Reproducibility
- Five analysis files are versioned in the repository with checksums, together with every result file and every generated table fragment.
- The inputs specific to the revised analyses (complete VIX series, rebuilt correlation series and other re-extractions) are regenerated from the data lake by logged read-only queries but are not committed; a replication without lake access reproduces the legacy result files, not the revision inputs.
- FirstRate Data licenses the data for private use: raw bars and option records may not be redistributed, and lake access requires a key issued by the operator.
- The original stores of the first extraction were lost; the lake used for the revision is a later vintage, and two frozen exhibits were reproduced on it within 0.018 and 0.008 in R².
- A note documents the differences from versions 1.1 and 1.2, including the earlier out-of-sample scheme reproduced side by side with the corrected one.
Cite this paper
Boucher, S.-P. (2026). Option-Implied Information about Future Variance and Market Stress: Correctly Timed Evidence from 69 Liquid US Underlyings, 2010–2025. UQO Working Paper No. 7, Université du Québec en Outaouais.
@techreport{boucher2026wp7,
author = {Simon-Pierre Boucher},
title = {Option-Implied Information about Future Variance and Market Stress: Correctly Timed Evidence from 69 Liquid US Underlyings, 2010–2025},
institution = {Université du Québec en Outaouais, Département des sciences administratives},
number = {7},
type = {UQO Working Paper},
year = {2026},
month = {nov},
url = {https://www.spboucher.ai/research/wp7},
}More in Finance & Economics