On the Linkages among Ex-ante and Ex-post Volatility: Evidence from NSE Options Market (India)

Imlak Shaikh and Puja Padhi
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Puja Padhi: Puja Padhi is Assistant Professor at the Department of Humanities and Social Sciences, IIT, Bombay. E-mail: pujapadhi@iitb.ac.in

Global Business Review, 2013, vol. 14, issue 3, 487-505

Abstract: This article investigates the cointegration level, and changes in the existence and direction of causality among volatilities. Vector autoregressive (VAR) model enables us to conduct Granger-causality and impulse response analysis, and determine the pattern of causality. The empirical findings uncover that ex-ante volatility best impounds the market-wide information to explain the ex-post volatility. Vector autoregression results make clear that unidirectional causality exists among ex-ante and ex-post volatilities. Impulse response analysis explains that realized volatility declines significantly initially in the first two periods and remains constant for all other periods. Findings, emphasizes that implied volatility is more informative on volatility forecasting, useful for successful volatility traders and pricing of options.

Keywords: Implied volatility; realized volatility; historical volatility; ex-ante and ex-post volatility; cointegration; Granger causality (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:globus:v:14:y:2013:i:3:p:487-505

DOI: 10.1177/0972150913496866

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