2026/04/12 by Tenghan Zhong · 1 voice
Economics, Econometrics and Finance · #q-fin.ST #q-fin.RM
arxiv published 2026/04/12 · arxiv updated 2026/07/02
Volatility forecasting becomes challenging when market conditions shift and model performance varies across market states. Motivated by this instability, we develop a risk-sensitive specialist routing framework for ETF volatility forecasting. The framework uses online risk-sensitive evaluation and state-dependent gating to combine different forecasting specialists across calm and stressed market states. Using a daily panel of six ETFs under a rolling walk-forward design, we find that the strongest forecaster is regime-dependent rather than stable across all states. Relative to the rolling-best baseline, the proposed routing framework reduces high-volatility forecast loss by about 24% and underprediction loss by about 22%. These results suggest that specialist routing provides a practical forecasting architecture that adapts to changing market conditions.