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Historic risk and implied volatility

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  • Dicle, Mehmet F.
  • Levendis, John

Abstract

This study extends the volatility prediction literature with (1) new intraday realized volatility measures and (2) various implied volatility indexes for commodities, currencies, and equities. Predicting volatility is important for academics, investors, and regulators. Applications range from forecasting stock and option returns to constructing early warning systems. Using twenty-three Chicago Board Options Exchange VIX indexes, as opposed to the common S&P 100 and S&P 500 equity indexes, we find a bidirectional lead-lag relationship between implied volatility and realized volatility. The lead-lag relationships are more robust and stronger using suggested intraday volatility measures than using the interday volatility measures that are common in the literature.

Suggested Citation

  • Dicle, Mehmet F. & Levendis, John, 2020. "Historic risk and implied volatility," Global Finance Journal, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:glofin:v:45:y:2020:i:c:s1044028318301625
    DOI: 10.1016/j.gfj.2019.100475
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    More about this item

    Keywords

    Volatility; Implied volatility; S&P 500; VIX; CBOE;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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