Relationship Between Implied Volatility And Realised Volatility The Case Of The German Stock Index Options Market
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The Information Content in Implied Idiosyncratic Volatility and the Cross-Section of Stock Returns
| Author | : Dean Diavatopoulos |
| Publisher | : |
| Total Pages | : 33 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
Current literature is inconclusive as to whether idiosyncratic risk influences future stock returns and the direction of the impact. Prior studies are based on historical realized volatility. Implied volatilities from option prices represent the market's assessment of future risk and are likely a superior measure to historical realized volatility. We use implied idiosyncratic volatilities on firms with traded options to examine the relation between idiosyncratic volatility and future returns. We find a strong positive link between implied idiosyncratic risk and future returns. After considering the impact of implied idiosyncratic volatility, historical realized idiosyncratic volatility is unimportant. This performance is strongly tied to small size and high book-to-market equity firms.
The Relation between Implied and Realized Volatility in the Danish Option and Equity Markets
| Author | : Charlotte Strunk Hansen |
| Publisher | : |
| Total Pages | : |
| Release | : 2002 |
| Genre | : |
| ISBN | : |
We show that the conclusions to be drawn concerning the informational efficiency of illiquid options depend critically on whether one is careful to recognize and appropriately deal with the econometrics of the errors-in-variables problem. This paper examines the information content of options on the Danish KFX share index. We consider the relation between the volatility implied in an option's price and the subsequently realized index return volatility. Since these options are traded infrequently and in low volumes, the errors-in-variables problem is potentially large. We address the problem directly using instrumental variables techniques. We find that when measurement errors are controlled for, call option prices even in this very illiquid market contain information about future realized volatility over and above the information contained in historical volatility.
Empirical Studies on Volatility in International Stock Markets
| Author | : Eugenie M.J.H. Hol |
| Publisher | : Springer |
| Total Pages | : 0 |
| Release | : 2010-11-19 |
| Genre | : Business & Economics |
| ISBN | : 9781441953759 |
Empirical Studies on Volatility in International Stock Markets describes the existing techniques for the measurement and estimation of volatility in international stock markets with emphasis on the SV model and its empirical application. Eugenie Hol develops various extensions of the SV model, which allow for additional variables in both the mean and the variance equation. In addition, the forecasting performance of SV models is compared not only to that of the well-established GARCH model but also to implied volatility and so-called realised volatility models which are based on intraday volatility measures. The intended readers are financial professionals who seek to obtain more accurate volatility forecasts and wish to gain insight about state-of-the-art volatility modelling techniques and their empirical value, and academic researchers and students who are interested in financial market volatility and want to obtain an updated overview of the various methods available in this area.
Implied and Realized Volatility in the Cross-Section of Equity Options
| Author | : Manuel Ammann |
| Publisher | : |
| Total Pages | : 30 |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
Using a complete sample of US equity options, we analyze patterns of implied volatility in the cross-section of equity options with respect to stock characteristics. We find that high-beta stocks, small stocks, stocks with a low-market-to-book ratio, and non-momentum stocks trade at higher implied volatilities after controlling for historical volatility. We find evidence that implied volatility overestimates realized volatility for low-beta stocks, small caps, low-market-to-book stocks, and stocks with no momentum and vice versa. However, we cannot reject the null hypothesis that implied volatility is an unbiased predictor of realized volatility in the cross section.
The negative relationship between the cross-section of expected returns and lagged idiosyncratic volatility. The German stock market 1990-2016
| Author | : Lasse Homann |
| Publisher | : GRIN Verlag |
| Total Pages | : 38 |
| Release | : 2020-04-23 |
| Genre | : Business & Economics |
| ISBN | : 3346153215 |
Master's Thesis from the year 2018 in the subject Business economics - Review of Business Studies, grade: 1.0, University of Hannover (Institute of Financial Markets), language: English, abstract: The main goal of this thesis is to examine whether the negative relationship between the cross-section of expected returns and lagged idiosyncratic volatility also can be found for the German stock market for the period of January 1990 through June 2016, by sorting stocks into portfolios on the basis of their idiosyncratic volatility estimates. This procedure follows Ang et al. (2006). Similar to the findings of Ang et al. (2006) for the US stock market this paper shows that there is a significant difference in returns relative to the Fama-French three-factor model, between portfolios of stocks with high and portfolios of stocks with low past idiosyncratic volatility. Although for the period 1990 - 2016 no relationship between lagged idiosyncratic volatility and the cross-section of stock returns has been found, the Idiosyncratic Volatility Puzzle reveals itself for the sub-period 2003 - 2016, when the respective portfolios of stocks with different levels of idiosyncratic volatility are controlled for size.
Long Memory and the Relation between Implied and Realized Volatility
| Author | : Federico M. Bandi |
| Publisher | : |
| Total Pages | : |
| Release | : 2010 |
| Genre | : |
| ISBN | : |
We argue that the predictive regression between implied volatility (regressor) and realized volatility over the remaining life of a European option (regressand) is likely to be a fractional cointegrating relation. Because cointegration is associated with long-run comovements, this classical regression cannot be used to test for option market efficiency and short-term unbiasedness of implied volatility as a predictor of realized volatility. Using narrow-band spectral methods, we provide consistent estimates of the long-run relation between implied and realized volatility even when implied volatility is measured with error and/or volatility is priced but the volatility risk premium is unobservable. Although little can be said about short-term unbiasedness, our results largely support a notion of long-run unbiasedness of implied volatility as a predictor of realized volatility.
The Forecasting Performance of German Stock Option Densities
| Author | : Ben R. Craig |
| Publisher | : |
| Total Pages | : 34 |
| Release | : 2007 |
| Genre | : |
| ISBN | : |
In this paper the authors estimate risk-neutral densities (RND) for the largest euro-area stock market (the index of which is the German DAX), reporting their statistical properties, and evaluating their forecasting performance. The authors have applied an innovative test procedure to a new, rich, and accurate data set. They have two main results. First, They have recorded strong negative skewness in the densities. Second, they find evidence for a significant difference between the actual density and the risk-neutral density, leading to the conclusion that market participants were surprised by the extent of both the rise and the fall of the DAX.
