The Information Content of VFTSE

19 Pages Posted: 29 Nov 2008 Last revised: 22 Jul 2010

See all articles by Costas Siriopoulos

Costas Siriopoulos

Zayed University, College of Business; University of Patras - Business Administration

Athanasios Fassas

University of Thessaly; Hellenic Open University

Date Written: November 30, 2008

Abstract

The FTSE 100 Volatility Index (VFTSE) reflects the market expectations of the future monthly volatility of the UK benchmark equity index, FTSE100. VFTSE is calculated using the model-free methodology that involves option prices summations and is independent from the Black and Scholes pricing formula. This study tests and documents the information content of VFTSE regarding both the realized volatility and the returns of the underlying equity index.

The empirical findings suggest that VFTSE includes information about future volatility beyond that contained in past volatility and in addition show that there is a statistically significant negative and asymmetric contemporaneous relationship between implied volatility changes and the underlying equity index returns.

Keywords: Implied volatility indices, London Stock Exchange, forecasting volatility, VFTSE

JEL Classification: G14, G15, G17, C53

Suggested Citation

Siriopoulos, Costas and Fassas, Athanasios, The Information Content of VFTSE (November 30, 2008). Available at SSRN: https://ssrn.com/abstract=1307702 or http://dx.doi.org/10.2139/ssrn.1307702

Costas Siriopoulos (Contact Author)

Zayed University, College of Business ( email )

P.O. Box 144534
Abu Dhabi
United Arab Emirates

University of Patras - Business Administration ( email )

Patras
Greece

Athanasios Fassas

University of Thessaly ( email )

Argonafton & Filellinon
38221 Volos, 41110
United States

Hellenic Open University ( email )

Parodos Aristotelous 18
Patra, 26335
Greece

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