Volatility Indicators for Predicting S&P 500 Drawdowns

Adding volatility indicators to a drawdown forecasting framework

In a recent post, Which Macro Indicators Actually Predict Market Drawdowns?, I discussed and tested new research on forecasting S&P 500 drawdowns using macro-financial indicators.

In this post, I revisit that topic and test whether two volatility indicators that we have previously shown to be useful for forecasting realized volatility and timing VX futures also help predict future S&P 500 drawdowns. The findings suggest there is additional information embedded in option markets that can help predict near-term market risk.

Finally, I apply the framework to today's market and discuss the current drawdown outlook.

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