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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27230
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| Title: | On the Dynamics and Information Content of Implied Volatility: A
Bivariate Time Series Perspective |
| Authors: | Jesper Christensen, Bent
Prabhala, N. R. |
| Keywords: | Options
Volatility
Information
Market efficiency |
| Issue Date: | Nov-1994 |
| Series/Report no.: | FIN-94-025 |
| Abstract: | A new research design is introduced for the empirical analysis of the
relationship between implied volatility and ex-post realized volatility.
The dynamics of volatility are emphasized, and the analysis is cast in
terms of non-overlapping data, so that exactly one implied and one
realized volatility estimate pertain to each period under consideration.
The conclusions from the empirical analysis when using our design are
significantly different from those previously reached. Recent literature
indicates that implied volatility contains little information about
future volatility, beyond that contained in the history of realized
volatility. We show that on the contrary, implied volatility efficiently
predicts future realized volatility and in particular subsumes the
information content of past realized volatility. |
| URI: | http://hdl.handle.net/2451/27230 |
| Appears in Collections: | Finance Working Papers
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