Is Implied Volatility Forward Looking? Evidence From India

Authors

  • Neelam Rani

DOI:

https://doi.org/10.33516/rb.v44i1.82-92p

Keywords:

Stock Market Volatility, Option Pricing, Implied Volatility, Realized Volatility, Historical Volatility, Future Volatility.

Abstract

This study investigates informational content of implied volatility about future volatility. Implied volatility is expected to be forward looking i.e. it captures market expectation rather than the past information. The study re-examines the relationship between implied volatility and realized volatility. The study investigates the informational content of implied volatility about future volatility in post-crisis period. The study utilizes implied volatility estimate from the contract with highest volumes. The rationale for such a selection is that a highly traded contract reflects an unbiased picture of market expectation. The study also compares information content of historical volatility and implied volatility about future volatility. It further tests whether implied volatility have incremental information about future volatility i.e. information over and above captured by historical volatility. The results reveal that implied volatility is not a significant predictor of future volatility.

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Published

2018-04-01

How to Cite

Rani, N. (2018). Is Implied Volatility Forward Looking? Evidence From India. Research Bulletin, 44(1), 82–92. https://doi.org/10.33516/rb.v44i1.82-92p

Issue

Volume 44, Issue 1, April 2018

Section

Articles
Crossref
Scopus
Google Scholar
Europe PMC

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