The jump component of S&P 500 volatility and the VIX indexRalf Becker, Adam Clements and Andrew McClelland Journal of Banking & Finance, 2009, vol. 33, issue 6, pages 1033-1038 Abstract: Much research has investigated the differences between option implied volatilities and econometric model-based forecasts. Implied volatility is a market determined forecast, in contrast to model-based forecasts that employ some degree of smoothing of past volatility to generate forecasts. Implied volatility has the potential to reflect information that a model-based forecast could not. This paper considers two issues relating to the informational content of the S&P 500 VIX implied volatility index. First, whether it subsumes information on how historical jump activity contributed to the price volatility, followed by whether the VIX reflects any incremental information pertaining to future jump activity relative to model-based forecasts. It is found that the VIX index both subsumes information relating to past jump contributions to total volatility and reflects incremental information pertaining to future jump activity. This issue has not been examined previously and expands our understanding of how option markets form their volatility forecasts. Keywords: Implied; volatility; VIX; Volatility; forecasts; Informational; efficiency; Jumps (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:eee:jbfina:v:33:y:2009:i:6:p:1033-1038 Access Statistics for this article Journal of Banking & Finance is edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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