The information content of option-implied information for volatility forecasting with investor sentiment

Seo, Sung Won; Kim, Jun Sik

doi:10.1016/j.jbankfin.2014.09.010

Cited by 71 publications

(39 citation statements)

References 86 publications

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“…However, the association for the trading activity of VIX options is temporary, which is consistent with the liquidity hypothesis. 5 In addition, the relation become weaker during the financial crisis, which is consistent with the notion of Seo and Kim (2015) that traders can disguise their information more easily during that period. 5 In addition, the relation become weaker during the financial crisis, which is consistent with the notion of Seo and Kim (2015) that traders can disguise their information more easily during that period.…”

supporting

confidence: 59%

“…These relations are particularly significant when we use the total number of transactions as the information source, which is in line with the stealth trading hypothesis proposed by Barclay and Warner (1993). 5 In addition, the relation become weaker during the financial crisis, which is consistent with the notion of Seo and Kim (2015) that traders can disguise their information more easily during that period.…”

supporting

confidence: 59%

“…Overall, our empirical results show that the trading activity of VIX futures is likely to contain more information than that of VIX options for the determination of VIX movements. Seo and Kim (2015) report that informed traders can more easily conceal or disguise transactions during the periods of high uncertainty. Consequently, given that the complexity of the financial crisis increases uncertainty, we examine whether the informational advantage of sign trading variables of VIX futures is relatively weak during the financial crisis.…”

Section: Relation Between Trading Activity Of Vix Derivatives and Vmentioning

confidence: 99%

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An analysis on the intraday trading activity of VIX derivatives

Kao¹,

Tsai

Wang

et al. 2017

Journal of Futures Markets

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We investigate the relation between trading activity in the VIX derivative markets and changes in the VIX index under a high‐frequency framework. We find a significant relation between the signed trading variables of VIX futures and the contemporaneous changes in the VIX index. In addition, the net signed trading variables of VIX futures are significant predictors of future changes in the VIX index. Our results provide support for the informational role of VIX futures and evidence that trading activity in VIX options is likely caused by temporary liquidity shocks rather than the likelihood of informed trading.

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supporting

confidence: 59%

supporting

confidence: 59%

Section: Relation Between Trading Activity Of Vix Derivatives and Vmentioning

confidence: 99%

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An analysis on the intraday trading activity of VIX derivatives

Kao¹,

Tsai

Wang

et al. 2017

Journal of Futures Markets

View full text Add to dashboard Cite

show abstract

“…Another recent study by Seo and Kim (2015) found that, to improve the option-implied volatility forecast of future returns, the forecasting model needed to take into consideration investor sentiment. Their study used high-frequency data for the S&P 500 index for the period from January 1996 to August 2010.…”

Section: Studies In the Usmentioning

confidence: 99%

Implied Volatility Forecasting in the Options Market: A Survey

Samsudin

Mohamad

2016

Sains Humanika

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Implied volatility is regarded as one of the most important variables for determining profitability in options trading. Implied volatility gives indication about the future volatility of the underlying asset and can be used to predict the degree to which the asset price might swing and thus whether the options could become profitable before expiration. Volatility forecasting can be grouped into two main categories namely option-implied volatility and historical time-series models. There is an academic debate as to which of the two methods has stronger predictive power. In this paper, we provide a review of options-implied volatility forecasting studies. This survey of the literature suggests there is no consensus to indicate that the implied volatility has stronger predictive power than historical time series in forecasting realized volatility.Keywords: Implied volatility; historical volatility; options; forecasting; literature review AbstrakVolatiliti implisit dianggap sebagai salah satu pembolehubah yang paling penting untuk menentukan keuntungan dalam perdagangan opsyen. Volatiliti implisit memberikan gambaran tentang turun naik harga pasaran aset sandaran masa depan. Ia juga boleh digunakan untuk meramalkan sejauh mana harga aset mungkin berubah, justeru itu ia memberi maklumat mengenai opsyen yang boleh memberi keuntungan sebelum tamat tempoh hayatnya. Ramalan volatiliti boleh dikategorikan ke dalam dua kumpulan utama iaitu volatiliti implisit-opsyen dan volatiliti dari model siri masa. Terdapat perdebatan akademik antara kedua-dua kaedah ramalan tersebut, yang manakah mempunyai kuasa ramalan kuat. Dalam kertas ini, kami menyediakan survei mengenai kajian volatiliti implisit-opsyen. Tinjauan litratur mencadangkan tidak ada kata sepakat untuk menunjukkan bahawa volatiliti implisit mempunyai kuasa ramalan lebih baik berbanding volatiliti dari model siri masa untuk menentukan volatiliti semasa.Kata Kunci: Volatiliti implisit; volatiliti dari model siri masa; opsyen, ramalan, tinjauan litratur. © 2016 Penerbit UTM Press. All rights reserved 1.0 INTRODUCTIONVolatility has been one of the main topics of discussion in finance over the years, and volatility forecasting is the main building block in finance research on topics such as option pricing, portfolio selection, and risk management. However, it is extremely difficult to predict volatility accurately. Volatility is basically the rate of change of a certain financial product's price, irrespective of the direction of the movement. A trader needs to understand or have an idea of how the price of a financial product will change and the volatility can assist him or her to forecast movements in the prices of any financial product. In terms of options, the most practical aspect of volatility is related to options strategies and prices, where it creates the opportunity for the trader to determine relative valuations of options. Knowing which options are cheap or expensive, the trader knows when to buy or sell them.Volatility forecasting can be broadly classi...

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“…Moreover, Lee, Paek, Ha, and Ko (2015) employed a structural VAR model for examining the relations among monthly realized volatility, market return, and aggregate equity fund flows in an international context. Seo and Kim (2015) examined the effect of investor sentiment on the relationship between the option-implied information and the future stock return monthly realized volatility. Moreover, more accurate estimators are employed for nonparametricaly estimating monthly realized volatility in this paper.…”

Section: Introductionmentioning

confidence: 99%