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The information content of short-term options

Oikonomou, Ioannis and Stancu, Andrei and Symeonidis, Lazaros and Wese Simen, Chardin (2019) 'The information content of short-term options.' Journal of Financial Markets, 46. ISSN 1386-4181

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Abstract

We exploit weekly options on the S&P 500 index to compute the weekly implied variance. We show that the weekly implied variance is a strong predictor of the weekly realized variance. In an encompassing regression test, it crowds out the information content of the monthly implied variance. Further tests reveal that the weekly implied variance outperforms not only the monthly implied variance but also well-established time series models of realized variance. This result holds both in- and out-of-sample and the forecast accuracy gains are significant.

Item Type: Article
Uncontrolled Keywords: Implied variance, Predictability, Realized variance, Weekly options
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 28 Jan 2020 13:01
Last Modified: 28 Jan 2020 13:15
URI: http://repository.essex.ac.uk/id/eprint/26583

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