Some Evidence on Option Prices as Predictors of Volatility

Malcolm Edey and Graham Elliott ()

Oxford Bulletin of Economics and Statistics, 1992, vol. 54, issue 4, 567-78

Abstract: This paper investigates the efficiency of Australian options market using a version of the Black-Scholes model. Under the joint null hypothesis that the pricing model is valid, and that forecasts are efficient, the implied volatilities calculated from observed.option prices should be efficient predictors of squared changes in the prices of the underlying securities on which the options are written. This hypothesis is tested using weekly data on prices of Australian financial futures options, and over-the-counter options in the Australian dollar/U.S. dollar currency market. The results indicate significant forecasting biases for each of the contracts studied. In each case, movements in implied volatilities appear to overstate changes in the true volatility of underlying prices. Copyright 1992 by Blackwell Publishing Ltd

Date: 1992
References: Add references at CitEc
Citations: View citations in EconPapers (3)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:bla:obuest:v:54:y:1992:i:4:p:567-78

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0305-9049

Access Statistics for this article

Oxford Bulletin of Economics and Statistics is currently edited by Christopher Adam, Anindya Banerjee, Christopher Bowdler, David Hendry, Adriaan Kalwij, John Knight and Jonathan Temple

More articles in Oxford Bulletin of Economics and Statistics from Department of Economics, University of Oxford Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().