Faculty Digital Archive

Archive@NYU >
Stern School of Business >
Finance Working Papers >

Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/27230

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

Files in This Item:

File Description SizeFormat
wpa94025.pdf1.77 MBAdobe PDFView/Open

Items in Faculty Digital Archive are protected by copyright, with all rights reserved, unless otherwise indicated.

 

The contents of the FDA may be subject to copyright, be offered under a Creative Commons license, or be in the public domain.
Please check items for rights statements. For information about NYU’s copyright policy, see http://www.nyu.edu/footer/copyright-and-fair-use.html 
Valid XHTML 1.0 | CSS