Author: Stephen J. Taylor
Publisher:
ISBN:
Category :
Languages : en
Pages : 64
Book Description
The volatility information content of stock options for individual firms is measured using option prices for 149 U.S. firms during the period from January 1996 to December 1999. Volatility forecasts defined by historical stock returns, at-the-money (ATM) implied volatilities and model-free (MF) volatility expectations are compared for each firm. The recently developed model-free volatility expectation incorporates information across all strike prices, and it does not require the specification of an option pricing model.Our analysis of ARCH models shows that, for one-day-ahead estimation, historical estimates of conditional variances outperform both the ATM and the MF volatility estimates extracted from option prices for more than one-third of the firms. This result contrasts with the consensus about the informational efficiency of options written on stock indices; several recent studies find that option prices are more informative than daily stock returns when estimating and predicting index volatility. However, for the firms with the most actively traded options, we do find that the option forecasts are nearly always more informative than historical stock returns. When the prediction horizon extends until the expiry date of the options, our regression results show that the option forecasts are more informative than forecasts defined by historical returns for a substantial majority (86%) of the firms. Although the model-free (MF) volatility expectation is theoretically more appealing than alternative volatility estimates and has been demonstrated to be the most accurate predictor of realized volatility by Jiang and Tian (2005) for the Samp;P 500 index, the results for our firms show that the MF expectation only outperforms both the ATM implied volatility and the historical volatility for about one-third of the firms. The firms for which the MF expectation is best are not associated with a relatively high level of trading in away-from-the-money options.
The Information Content of Implied Volatilities and Model-Free Volatility Expectations
Author: Stephen J. Taylor
Publisher:
ISBN:
Category :
Languages : en
Pages : 64
Book Description
The volatility information content of stock options for individual firms is measured using option prices for 149 U.S. firms during the period from January 1996 to December 1999. Volatility forecasts defined by historical stock returns, at-the-money (ATM) implied volatilities and model-free (MF) volatility expectations are compared for each firm. The recently developed model-free volatility expectation incorporates information across all strike prices, and it does not require the specification of an option pricing model.Our analysis of ARCH models shows that, for one-day-ahead estimation, historical estimates of conditional variances outperform both the ATM and the MF volatility estimates extracted from option prices for more than one-third of the firms. This result contrasts with the consensus about the informational efficiency of options written on stock indices; several recent studies find that option prices are more informative than daily stock returns when estimating and predicting index volatility. However, for the firms with the most actively traded options, we do find that the option forecasts are nearly always more informative than historical stock returns. When the prediction horizon extends until the expiry date of the options, our regression results show that the option forecasts are more informative than forecasts defined by historical returns for a substantial majority (86%) of the firms. Although the model-free (MF) volatility expectation is theoretically more appealing than alternative volatility estimates and has been demonstrated to be the most accurate predictor of realized volatility by Jiang and Tian (2005) for the Samp;P 500 index, the results for our firms show that the MF expectation only outperforms both the ATM implied volatility and the historical volatility for about one-third of the firms. The firms for which the MF expectation is best are not associated with a relatively high level of trading in away-from-the-money options.
Publisher:
ISBN:
Category :
Languages : en
Pages : 64
Book Description
The volatility information content of stock options for individual firms is measured using option prices for 149 U.S. firms during the period from January 1996 to December 1999. Volatility forecasts defined by historical stock returns, at-the-money (ATM) implied volatilities and model-free (MF) volatility expectations are compared for each firm. The recently developed model-free volatility expectation incorporates information across all strike prices, and it does not require the specification of an option pricing model.Our analysis of ARCH models shows that, for one-day-ahead estimation, historical estimates of conditional variances outperform both the ATM and the MF volatility estimates extracted from option prices for more than one-third of the firms. This result contrasts with the consensus about the informational efficiency of options written on stock indices; several recent studies find that option prices are more informative than daily stock returns when estimating and predicting index volatility. However, for the firms with the most actively traded options, we do find that the option forecasts are nearly always more informative than historical stock returns. When the prediction horizon extends until the expiry date of the options, our regression results show that the option forecasts are more informative than forecasts defined by historical returns for a substantial majority (86%) of the firms. Although the model-free (MF) volatility expectation is theoretically more appealing than alternative volatility estimates and has been demonstrated to be the most accurate predictor of realized volatility by Jiang and Tian (2005) for the Samp;P 500 index, the results for our firms show that the MF expectation only outperforms both the ATM implied volatility and the historical volatility for about one-third of the firms. The firms for which the MF expectation is best are not associated with a relatively high level of trading in away-from-the-money options.
The Information Content of Implied Volatility
Author: Linda Canina
Publisher:
ISBN:
Category : Stock price forecasting
Languages : en
Pages : 47
Book Description
Publisher:
ISBN:
Category : Stock price forecasting
Languages : en
Pages : 47
Book Description
The Information Content in Implied Idiosyncratic Volatility and the Cross-Section of Stock Returns
Author: Dean Diavatopoulos
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
Book Description
Current literature is inconclusive as to whether idiosyncratic risk influences future stock returns and the direction of the impact. Prior studies are based on historical realized volatility. Implied volatilities from option prices represent the market's assessment of future risk and are likely a superior measure to historical realized volatility. We use implied idiosyncratic volatilities on firms with traded options to examine the relation between idiosyncratic volatility and future returns. We find a strong positive link between implied idiosyncratic risk and future returns. After considering the impact of implied idiosyncratic volatility, historical realized idiosyncratic volatility is unimportant. This performance is strongly tied to small size and high book-to-market equity firms.
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
Book Description
Current literature is inconclusive as to whether idiosyncratic risk influences future stock returns and the direction of the impact. Prior studies are based on historical realized volatility. Implied volatilities from option prices represent the market's assessment of future risk and are likely a superior measure to historical realized volatility. We use implied idiosyncratic volatilities on firms with traded options to examine the relation between idiosyncratic volatility and future returns. We find a strong positive link between implied idiosyncratic risk and future returns. After considering the impact of implied idiosyncratic volatility, historical realized idiosyncratic volatility is unimportant. This performance is strongly tied to small size and high book-to-market equity firms.
The Information Content of Implied Volatility
Author: Bart Frijns
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
Book Description
In this paper we develop and evaluate the information content of an implied volatility index for the Australian stock market. Using price data on Samp;P/ASX 200 index options and SFE SPI 200 index futures options, we develop implied volatility indices with a time to maturity of three months and one month, respectively. When evaluating the information content of both implied volatility indices we find that the implied volatility index based on the Samp;P/ASX 200 index options with a three-month horizon is most informative in terms of explaining stock market returns and forecasting future volatility. For this implied volatility index we find a significant negative and asymmetric relationship between changes in implied volatility and Samp;P/ASX 200 returns, i.e., stock market prices decline more when implied volatility increases than they increase when implied volatility drops. When evaluating the forecasting power of implied volatility for future market volatility we find that the implied volatility index based on the Samp;P/ASX 200 index options contains important information both insample and out-of-sample. In-sample, the implied volatility index significantly improves the fit of a GJR-GARCH(1, 1) model. Out-of-sample, we find that the implied volatility index significantly outperforms the RiskMetrics and GJR-GARCH(1, 1) model, with its highest forecasting power at the one-month forecasting horizon.
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
Book Description
In this paper we develop and evaluate the information content of an implied volatility index for the Australian stock market. Using price data on Samp;P/ASX 200 index options and SFE SPI 200 index futures options, we develop implied volatility indices with a time to maturity of three months and one month, respectively. When evaluating the information content of both implied volatility indices we find that the implied volatility index based on the Samp;P/ASX 200 index options with a three-month horizon is most informative in terms of explaining stock market returns and forecasting future volatility. For this implied volatility index we find a significant negative and asymmetric relationship between changes in implied volatility and Samp;P/ASX 200 returns, i.e., stock market prices decline more when implied volatility increases than they increase when implied volatility drops. When evaluating the forecasting power of implied volatility for future market volatility we find that the implied volatility index based on the Samp;P/ASX 200 index options contains important information both insample and out-of-sample. In-sample, the implied volatility index significantly improves the fit of a GJR-GARCH(1, 1) model. Out-of-sample, we find that the implied volatility index significantly outperforms the RiskMetrics and GJR-GARCH(1, 1) model, with its highest forecasting power at the one-month forecasting horizon.
The Information Content of Implied Volatility: an Empirical Study of the FTSE 100 Stock Index Options
Author: Charalambos Vovos
Publisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Publisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
The Informational Content of Implied Volatility
Author: Linda Canina
Publisher:
ISBN:
Category : Stock options
Languages : en
Pages : 40
Book Description
Publisher:
ISBN:
Category : Stock options
Languages : en
Pages : 40
Book Description
On the Dynamics and Information Content of Implied Volatility
Author: Bent Jesper Christensen
Publisher:
ISBN:
Category :
Languages : en
Pages : 52
Book Description
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.
Publisher:
ISBN:
Category :
Languages : en
Pages : 52
Book Description
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.
The Information Content of Implied Volatility Indexes for Forecasting Volatility and Market Risk
Author: Pierre Giot
Publisher:
ISBN:
Category :
Languages : en
Pages : 54
Book Description
Publisher:
ISBN:
Category :
Languages : en
Pages : 54
Book Description
Applied Economic Forecasting
Author: Henri Theil
Publisher:
ISBN:
Category : Economic forecasting
Languages : en
Pages : 508
Book Description
The subjects covered include econometric macromodels, preliminary estimates of recent changes input-outputs, forecast applications of information concepts and various survey techniques dealing ...
Publisher:
ISBN:
Category : Economic forecasting
Languages : en
Pages : 508
Book Description
The subjects covered include econometric macromodels, preliminary estimates of recent changes input-outputs, forecast applications of information concepts and various survey techniques dealing ...
On the Dynamics and Information Content of Implied Volatility
Author: Arnold W. Sametz
Publisher:
ISBN:
Category : Computer networks
Languages : en
Pages : 28
Book Description
Publisher:
ISBN:
Category : Computer networks
Languages : en
Pages : 28
Book Description