Intra-day Behavior of Treasury Sector Index Option Implied Volatilities around Macroeconomic Announcements
AbstractIf option implied volatility is an unbiased, efficient forecast of future return volatility in the underlying asset, then we should be able to predict its path around macroeconomic announcements from responses in cash markets. Regressions show that volatilities rise the afternoon before announcements that move cash markets, and that post-announcement volatilities return to normal as rapidly as cash prices do. Although implied volatilities are predictable, the Treasury options market is efficient since informed traders do not earn arbitrage profits once we account for trading costs. Copyright 2003 Eastern Finance Association.
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Bibliographic InfoArticle provided by Eastern Finance Association in its journal The Financial Review.
Volume (Year): 38 (2003)
Issue (Month): 1 (02)
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- Bruce Mizrach & Christopher J. Neely, 2007. "The microstructure of the U.S. treasury market," Working Papers 2007-052, Federal Reserve Bank of St. Louis.
- Nikkinen, Jussi & Omran, Mohammed & Sahlstrom, Petri & Aijo, Janne, 2006. "Global stock market reactions to scheduled U.S. macroeconomic news announcements," Global Finance Journal, Elsevier, vol. 17(1), pages 92-104, September.
- Äijö, Janne, 2008. "Impact of US and UK macroeconomic news announcements on the return distribution implied by FTSE-100 index options," International Review of Financial Analysis, Elsevier, vol. 17(2), pages 242-258.
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