On the relation between implied and realized volatility indices: Evidence from the BRIC countries

Sónia R. Bentes

Physica A: Statistical Mechanics and its Applications, 2017, vol. 482, issue C, 243-248

Abstract: This paper investigates the relation between implied (IV) and realized volatility (RV). Using monthly data from the BRIC countries, we assess the informational content of IV in explaining future RV as well as its unbiasedness and efficiency. We employ an ADL (Autoregressive Distributed Lag) and the corresponding EC (Error Correction) model and compare the results with the ones obtained from the OLS regression. Our goal is to assess the fully dynamical relations between these variables and to separate the short from the long-run effects. We found different results for the informational content of IV according to the methodologies used. However, both methods show that IV is an unbiased estimate of RV for India and that IV was not found to be efficient in any of the BRIC countries. Further, EC results reveal the presence of short and long-run effects for India, whereas Russia exhibits only short-run adjustments.

Keywords: Implied volatility; Realized volatility; ADL model; EC model (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:482:y:2017:i:c:p:243-248

DOI: 10.1016/j.physa.2017.04.071

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