The Information Content of Option-Based Forecasts of Volatility: Evidence from the Italian Stock Market

Silvia Muzzioli ()
Additional contact information
Silvia Muzzioli: Department of Economics and CEFIN, University of Modena and Reggio Emilia, Viale Berengario 51, 41100 Modena (I), Italy

Quarterly Journal of Finance (QJF), 2013, vol. 03, issue 01, 1-46

Abstract: The aim of this paper is to comprehensively compare option-based measures of volatility, with the ultimate plan of devising a new volatility index for the Italian stock market. The performance of the different implied volatility measures in forecasting future volatility is evaluated both in a statistical and in an economic setting. The properties of the implied volatility measures are also explored, by looking at both the contemporaneous relationship between implied volatility changes and market returns and the usefulness of the proposed index in forecasting future market returns.The results of the paper are of practical importance for both policy-makers and investors. The volatility index, based on corridor measures, could be used to forecast market volatility, for value at risk purposes, in order to determine trading strategies on the underlying index and as an early warning for future market conditions.

Keywords: Volatility index; Black-Scholes implied volatility; model-free implied volatility; corridor implied volatility; implied binomial trees; G13; G14 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2010139213500055
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:qjfxxx:v:03:y:2013:i:01:n:s2010139213500055

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2010139213500055

Access Statistics for this article

Quarterly Journal of Finance (QJF) is currently edited by Fernando Zapatero

More articles in Quarterly Journal of Finance (QJF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().