Multi-Day Volatility Forecasts for Superior Day-Ahead Trading Predictions

What if longer-horizon volatility forecasts contain information that could enhance short-term trading decisions?

Traditional forecasting models in finance often assume that the forecast horizon should match the trading horizon. If you're trading daily, the logic goes, then use 1-day-ahead forecasts. However, this approach may be too narrow. What if longer-horizon volatility forecasts contain information that could enhance short-term trading decisions?

This article challenges the standard assumption. We examine whether multi-day-ahead implied volatility forecasts can improve next-day trading performance in VIX and S&P 500 futures. Using extended-horizon forecasts from HAR-type models, we analyze whether these longer-term views on volatility can guide tactical short-term trades more effectively than traditional day-ahead models.

The results show that multi-day signals aren't just redundant—they add value. Especially during high-volatility episodes, longer-horizon forecasts provide forward-looking context that enhances next-day trade timing, position sizing, and directional bets. In other words, even…