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Does implied volatility contain information about future volatility? Evidence from the Petrobras options market

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Author Info

  • José Valentim Machado Vicente

    (Ibmec-RJ Business School)

  • Tiago de Sousa Guedes

    (Ibmec-RJ Business School)

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    Abstract

    The aim of this work is to study the relationship between implied and realized volatilities. For this purpose, we analyze the markets of Petrobras stocks and calls between January 2006 and December 2008. Regression analysis with no overlapping monthly data of in-the-money, at-the-money and out-of-the-money calls indicates that the implied volatility of out-of-the-money options contains more information about future volatility than does historical volatility. On the other hand, the implied volatility of the in-the-money and at-the-money calls has poor explanatory power about future volatility.

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    Bibliographic Info

    Article provided by Fucape Business School in its journal Brazilian Business Review.

    Volume (Year): 7 (2010)
    Issue (Month): 1 (January)
    Pages: 42-58

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    Handle: RePEc:bbz:fcpbbr:v:7:y:2010:i:1:p:42-58

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    Related research

    Keywords: Options; volatility; market efficiency.;

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