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Forward looking information in S&P 500 options

Author

Listed:
  • Scott I White
  • Ralf Becker
  • Adam E Clements

Abstract

Implied volatility generated from observed option prices reflects market expectations of future volatility. This paper determines whether or not, implied volatilities, and hence market expectations, contain any genuinely forward looking information not already captured by historical information. Historical information is represented by current levels of volatility and model based forecasts using a variety of volatility models. The VIX index, constructed from S&P 500 options data is the measure of implied volatility used in this study. Once accounting for historical information, VIX appears to contain no forward looking information regarding future S&P 500 volatility

Suggested Citation

  • Scott I White & Ralf Becker & Adam E Clements, 2004. "Forward looking information in S&P 500 options," Econometric Society 2004 Australasian Meetings 233, Econometric Society.
    • Handle: RePEc:ecm:ausm04:233
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    File URL: http://repec.org/esAUSM04/up.13951.1077851675.pdf
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    References listed on IDEAS

    as
    1. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 1999. "The Distribution of Exchange Rate Volatility," Center for Financial Institutions Working Papers 99-08, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 1999. "(Understanding, Optimizing, Using and Forecasting) Realized Volatility and Correlation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-061, New York University, Leonard N. Stern School of Business-.
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    Cited by:

    1. Becker, Ralf & Clements, Adam E. & White, Scott I., 2006. "On the informational efficiency of S&P500 implied volatility," The North American Journal of Economics and Finance, Elsevier, vol. 17(2), pages 139-153, August.

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    More about this item

    Keywords

    Implied volatility; information; volatility forecasts; volatility models; realized volatility;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G00 - Financial Economics - - General - - - General

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