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Partial moment volatility indices

Zhangxin (Frank) Liu and Michael J. O'Neill

Accounting and Finance, 2018, vol. 58, issue 1, 195-215

Abstract: Forward‐looking partial moment volatility indices are developed using state‐pricing, called the bear index (BEX) and bull index (BUX). Using S&P 500 index (SPX) option prices, we find that BEX and BUX provide superior forecasts for the lower and upper partial moments of future market realised volatility, respectively. We examine the relation between SPX returns and changes in BEX and BUX at the daily level. Results are consistent with the volatility feedback hypothesis. Further, we show that BEX may be more suitable as the ‘investor fear gauge’ than VIX.

Date: 2018
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Handle: RePEc:bla:acctfi:v:58:y:2018:i:1:p:195-215