Implied volatility from options on gold futures: do statistical forecasts add value or simply paint the lilly?

Christopher Neely

No 2003-018, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Consistent with findings in other markets, implied volatility is a biased predictor of the realized volatility of gold futures. No existing explanation?including a price of volatility risk?can completely explain the bias, but much of this apparent bias can be explained by persistence and estimation error in implied volatility. Statistical criteria reject the hypothesis that implied volatility is informationally efficient with respect to econometric forecasts. But delta hedging exercises indicate that such econometric forecasts have no incremental economic value. Thus, statistical measures of bias and information efficiency are misleading measures of the information content of option prices.

Keywords: Gold; Futures; Forecasting (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-fin
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Citations: View citations in EconPapers (4)

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DOI: 10.20955/wp.2003.018

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