Volatility Forecasts, Trading Volume and the ARCH vs. Option-Implied Volatility Tradeoff
AbstractMarket expectations of future return volatility play a crucial role in finance; so too does our understanding of the process by which information is incorporated in security prices through the trading process. This paper seeks to learn something about both of these issues by investigating empirically the role of trading volume (a) in predicting the relative informativeness of volatility forecasts produced by ARCH models versus the volatility forecasts derived from option prices, and (b) in improving volatility forecasts produced by ARCH and option models and combinations of models.
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Bibliographic InfoPaper provided by Department of Economics, Simon Fraser University in its series Discussion Papers with number dp01-1.
Length: 23 pages
Date of creation: 2001
Date of revision:
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Postal: Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
Web page: http://www.sfu.ca/economics.html
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Postal: Working Paper Coordinator, Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
- F1 - International Economics - - Trade
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- Taylor, Nicholas, 2008. "Can idiosyncratic volatility help forecast stock market volatility?," International Journal of Forecasting, Elsevier, vol. 24(3), pages 462-479.
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