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Implied Volatility as a Predictor: the Case of the IBEX-35 Future Contract/La volatilidad implícita como herramienta de predicción: una aplicación al contrato de futuro sobre Ibex 35

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  • CABEDO, J. DAVID

    ()
    (Departamento de Finanzas y Contabilidad. Universidad Jaume I. Campus Riu Sec; 12071 Castellón - Teléfono 964387150.)

  • MOYA CLEMENTE, ISMAEL

    ()
    (Departamento de Economía y Ciencias Sociales.Facultad de Administración y Dirección de Empresas. Universidad Politécnica de Valencia. Camino de la Vera, s/n; 46071 Valencia; Teléfono: 964387150.)

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    Abstract

    In this paper we analyse if the implied volatility (IMV) is an unbiased predictor for the realised volatility (REV) of the underlying asset (future contracts). For this aim we use the daily data from Ibex-35 future option market (years 2000 to 2003). From the option prices we obtain a series of daily IMV. Furthermore, we obtain two additional series, one for historical and another for realised volatility, from the daily quotes of Ibex-35 future contracts. By using these data, we contrast three hypotheses regarding the forecasting power of IMV on REV: IMV is an unbiased estimate of the future REV; IMV has more explanatory power than the historical volatility (HIV) when forecasting future REV; and HIV does not provide more information on REV than that provided by IMV. Finally we test these hypotheses by using, as historical volatility, the estimation provided by a GARCH model. Our results indicate that, when forecasting, historical volatility does not provide additional information to that provided by implied volatility. However, IMV tends to overestimate realised volatility values. En el presente trabajo se analiza si la volatilidad implícita (IMV) es un predictor insesgado de la volatilidad real (REV) del activo subyacente (contrato de futuro). Con este fin se utilizan datos diarios del mercado de futuros y opciones sobre Ibex 35, de los años comprendidos entre 2000 y 2003: Por un lado, a partir de las cotizaciones de los contratos de opción se calcula una serie diaria de IMV. Por otro lado, a partir de las cotizaciones diarias de los contratos de opción, se elaboran dos series adicionales (una para la volatilidad real y otra para la volatilidad histórica). Utilizando estas series en el trabajo se contrastan 3 hipótesis sobre el poder predictivo de la volatilidad implícita: Si IMV es un estimador insesgado de la futura REV; si IMV tiene un poder explicativo mayor que la volatilidad histórica (HIV) cuando se realizan predicciones sobre valores futuros de la REV; y si HIV proporciona información adicional a la aportada por la IMV cuando se realizan las mencionadas predicciones. Final-me te, estas hipótesis se contrastan usando como volatilidad histórica las estimaciones proporcionadas por un modelo GARCH. Los resultados alcanzados muestran que, a la hora de predecir los valores de la volatilidad real, HIV no proporciona información adicional a la aportada por IMV. No obstante, las predicciones realizadas utilizando esta última volatilidad tienden a sobrestimar el valor de la volatilidad real.

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    Bibliographic Info

    Article provided by Estudios de Economía Aplicada in its journal Estudios de Economía Aplicada.

    Volume (Year): 23 (2005)
    Issue (Month): (Abril)
    Pages: 67-78

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    Handle: RePEc:lrk:eeaart:23_1_4

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    Keywords: Volatility forecasting; Implied volatility; Ibex-35 future option market/Predicción de la volatilidad; implícita; Mercado de futuros y opciones sobre Ibex 35.;

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    1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    2. Chiras, Donald P. & Manaster, Steven, 1978. "The information content of option prices and a test of market efficiency," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 213-234.
    3. Canina, Linda & Figlewski, Stephen, 1993. "The Informational Content of Implied Volatility," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 659-81.
    4. Schmalensee, Richard & Trippi, Robert R, 1978. "Common Stock Volatility Expectations Implied by Option Premia," Journal of Finance, American Finance Association, vol. 33(1), pages 129-47, March.
    5. Akgiray, Vedat, 1989. "Conditional Heteroscedasticity in Time Series of Stock Returns: Evidence and Forecasts," The Journal of Business, University of Chicago Press, vol. 62(1), pages 55-80, January.
    6. Beckers, Stan, 1981. "Standard deviations implied in option prices as predictors of future stock price variability," Journal of Banking & Finance, Elsevier, vol. 5(3), pages 363-381, September.
    7. E.K. Berndt & B.H. Hall & R.E. Hall, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 103-116 National Bureau of Economic Research, Inc.
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