Do stylized facts of equity-based volatility indices apply to fixed-income volatility indices? Evidence from the US Treasury market
In this paper, we examine whether widely documented properties of equity-based volatility indices apply to US Treasury bond volatility indices (TBVIXs). We calculate TBVIXs in a model-free way using the market prices of five-, ten- and 30-year Treasury futures options over a sample of more than 20years. The empirical findings of this study reveal that changes in TBVIXs are positively correlated with changes in both Treasury yield rates and US non-fixed income and European equity-based volatility indices. Our analysis also shows that changes in Treasury yield rates Granger cause changes in TBVIXs and that past changes in TBVIXs help explain current changes in equity-based volatility indices (and vice versa). Finally, we find that TBVIXs fall following scheduled macroeconomic news announcements and that the response of TBVIXs to news releases depends to some extent on the magnitude and sign of the surprise in the announcement. This study's findings have implications for volatility risk management using the recently listed futures on the Chicago Board of Options Exchange's ten-year Treasury note volatility index.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 42 (2015)
Issue (Month): C ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/inca/620166|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mark Britten-Jones & Anthony Neuberger, 2000. "Option Prices, Implied Price Processes, and Stochastic Volatility," Journal of Finance, American Finance Association, vol. 55(2), pages 839-866, 04.
- Sami Vähämaa & Janne Äijö, 2011. "The Fed's policy decisions and implied volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(10), pages 995-1010, October.
- Gospodinov, Nikolay & Jamali, Ibrahim, 2012. "The effects of Federal funds rate surprises on S&P 500 volatility and volatility risk premium," Journal of Empirical Finance, Elsevier, vol. 19(4), pages 497-510.
- Beber, Alessandro & Brandt, Michael W., 2006.
"The effect of macroeconomic news on beliefs and preferences: Evidence from the options market,"
Journal of Monetary Economics,
Elsevier, vol. 53(8), pages 1997-2039, November.
- Alessandro Beber & Michael W. Brandt, 2003. "The Effect of Macroeconomic News on Beliefs and Preferences: Evidence from the Options Market," NBER Working Papers 9914, National Bureau of Economic Research, Inc.
- Alessandro BEBER & Michael W. BRANDT, 2004. "The Effects of Macroeconomic News on Beliefs and Preferences: Evidence from the Options Market," FAME Research Paper Series rp105, International Center for Financial Asset Management and Engineering.
- Nikkinen, Jussi & Sahlstrom, Petri, 2004. "International transmission of uncertainty implicit in stock index option prices," Global Finance Journal, Elsevier, vol. 15(1), pages 1-15.
- Siriopoulos, Costas & Fassas, Athanasios, 2012. "An investor sentiment barometer — Greek Implied Volatility Index (GRIV)," Global Finance Journal, Elsevier, vol. 23(2), pages 77-93.
- Barone-Adesi, Giovanni & Whaley, Robert E, 1987. " Efficient Analytic Approximation of American Option Values," Journal of Finance, American Finance Association, vol. 42(2), pages 301-320, June.
- Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
- Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports 99, Federal Reserve Bank of New York.
- John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005. "A Theory Of The Term Structure Of Interest Rates," World Scientific Book Chapters,in: Theory Of Valuation, chapter 5, pages 129-164 World Scientific Publishing Co. Pte. Ltd..
- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
- Jones, Charles M. & Lamont, Owen & Lumsdaine, Robin L., 1998. "Macroeconomic news and bond market volatility," Journal of Financial Economics, Elsevier, vol. 47(3), pages 315-337, March.
- Charles M. Jones & Owen Lamont & Robin L. Lumsdaine, "undated". "Macroeconomic News and Bond Market Volatility," CRSP working papers 333, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Charles M. Jones & Owen Lamont & Robin Lumsdaine, 1996. "Macroeconomic News and Bond Market Volatility," Home Pages _005, Princeton University, Department of Economics.
- Neumann, Michael & Skiadopoulos, George, 2013. "Predictable Dynamics in Higher-Order Risk-Neutral Moments: Evidence from the S&P 500 Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(03), pages 947-977, June.
- Bart Frijns & Christian Tallau & Alireza Tourani‐Rad, 2010. "The information content of implied volatility: Evidence from Australia," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 30(2), pages 134-155, 02.
- Michael Graham & Jussi Nikkinen & Petri Sahlström, 2003. "Relative importance of scheduled macroeconomic news for stock market investors," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 27(2), pages 153-165, June.
- Nikkinen, Jussi & Sahlstrom, Petri, 2004. "Impact of the federal open market committee's meetings and scheduled macroeconomic news on stock market uncertainty," International Review of Financial Analysis, Elsevier, vol. 13(1), pages 1-12.
- Whaley, Robert E, 1986. " Valuation of American Futures Options: Theory and Empirical Tests," Journal of Finance, American Finance Association, vol. 41(1), pages 127-150, March.
- Liu, Ming-Lei & Ji, Qiang & Fan, Ying, 2013. "How does oil market uncertainty interact with other markets? An empirical analysis of implied volatility index," Energy, Elsevier, vol. 55(C), pages 860-868.
- William Poole & Robert Rasche, 2000. "Perfecting the Market's Knowledge of Monetary Policy," Journal of Financial Services Research, Springer;Western Finance Association, vol. 18(2), pages 255-298, December.
- William Poole & Robert H. Rasche, 2000. "Perfecting the market's knowledge of monetary policy," Working Papers 2000-010, Federal Reserve Bank of St. Louis.
- Konstantinidi, Eirini & Skiadopoulos, George & Tzagkaraki, Emilia, 2008. "Can the evolution of implied volatility be forecasted? Evidence from European and US implied volatility indices," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2401-2411, November.
- Alessandro Beber & Michael W. Brandt, 2010. "When It Cannot Get Better or Worse: The Asymmetric Impact of Good and Bad News on Bond Returns in Expansions and Recessions," Review of Finance, European Finance Association, vol. 14(1), pages 119-155.
- Chen, En-Te (John) & Clements, Adam, 2007. "S&P 500 implied volatility and monetary policy announcements," Finance Research Letters, Elsevier, vol. 4(4), pages 227-232, December.
- Bedendo, Mascia & Hodges, Stewart D., 2009. "The dynamics of the volatility skew: A Kalman filter approach," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1156-1165, June.
- Ihsan Ullah Badshah & Bart Frijns & Alireza Tourani‐Rad, 2013. "Contemporaneous Spill‐Over Among Equity, Gold, and Exchange Rate Implied Volatility Indices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 33(6), pages 555-572, 06.
- Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
- Ederington, Louis H. & Lee, Jae Ha, 1996. "The Creation and Resolution of Market Uncertainty: The Impact of Information Releases on Implied Volatility," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(04), pages 513-539, December.
- Nikkinen, Jussi & Sahlstrom, Petri, 2004. "Scheduled domestic and US macroeconomic news and stock valuation in Europe," Journal of Multinational Financial Management, Elsevier, vol. 14(3), pages 201-215, July.
- Bliss, Robert R. & Panigirtzoglou, Nikolaos, 2002. "Testing the stability of implied probability density functions," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 381-422, March.
- Jiang, George J. & Konstantinidi, Eirini & Skiadopoulos, George, 2012. "Volatility spillovers and the effect of news announcements," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2260-2273.
- Kevin Krieger & Nathan Mauck & Denghui Chen, 2012. "VIX changes and derivative returns on FOMC meeting days," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(3), pages 315-331, September. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:42:y:2015:i:c:p:292-303. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.