The paper investigates whether the impact of selected news--scheduled and unscheduled--affects only the current conditional variance of financial prices or, by bringing new information to the market, induces also a revision of the implied variance, i.e. the variance expected to prevail over the life to maturity of an option. The latter phenomenon would signal that news is able to change permanently the consensus on the future economic environment. In addition to recent similar analyses which employ the at-the-money implied volatility to this aim, tests are also performed on the implied out-of-money and in-the-money volatilities. These are in fact extremely sensitive to lack of information about the future evolution of the price of the underlying asset: hence, their prices--as well as their implied volatilities--must change significantly after the occurrence of important events. Copyright 2001 by Taylor and Francis Group
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Volume (Year): 11 (2001) Issue (Month): 2 (April) Pages: 179-86 Download reference. The following formats are available: HTML
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