What a coherence signal means for a risk desk

For risk teams and allocators, the one-line version: this is a model-risk signal, not a trade. It flags the regimes where a standard backward-looking volatility model is most likely to be caught flat-footed.

The gap it watches

Most desks forecast near-term volatility with a HAR-style realized-volatility model — a sensible, backward-looking baseline that extrapolates recent calm and recent stress. Its blind spot is structural: when the underlying technical indicators quietly synchronize, the system is tightening in a way recent realized volatility has not yet reflected. The coherence hub is built to register exactly that tightening.

What the signal says — and what it does not

• It says: “A backward-looking HAR baseline is structurally too calm right now.” That is a model-risk flag for sizing, hedging, and stress assumptions.
• It does not say: which direction the market will move (direction is null by design), nor that you can beat traded implied volatility — standard-tenor IV already prices much of the move.

Where it fits operationally

Treat it as an overlay on existing volatility and risk engines, not a replacement: a regime light that turns on when the cheap, backward-looking forecast is most likely to under-state forward risk. Its value is precise and defensible — it lives in the gap between the HAR win and the IV null. Modest, honest, and the more credible for it.

← All research notes

All figures cited here trace to the locked working paper (Table 1 magnitudes, Table 2 direction nulls). No number is added or changed in web adaptation without re-verification.