AbstractsEconomics
Does Implied Volatility Predict Realized Volatility?
| Institution: | Uppsala University |
|---|---|
| Department: | |
| Year: | 2014 |
| Keywords: | Implied volatility; index options; Black-Scholes; market efficiency; Social Sciences; Economics and Business; Economics; Samhällsvetenskap; Ekonomi och näringsliv; Nationalekonomi; Ekonomie kandidatprogrammet; Ekonomie kandidatprogrammet; Economics; Nationalekonomi |
| Record ID: | 1334356 |
| Full text PDF: | http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-218792 |
Abstract
The informational content of implied volatility and its prediction power is evaluated for time horizons of one month. The study covers the period of November 2007 to November 2013 for the two indices S&P500 and OMXS30. The findings are put in relation to the corresponding results for past realized volatility. We find results supporting that implied volatility is an efficient, although biased estimator of realized volatility. Our results support the common notion that implied volatility predicts realized volatility better than past realized volatility, and that it also subsumes most of the informational content of past realized volatility.
