Partial Moment Volatility Indices

21 Pages Posted: 28 Mar 2018

See all articles by Zhangxin Frank Liu

Zhangxin Frank Liu

The University of Western Australia Business School

Michael J. O'Neill

Bond University - Bond Business School

Date Written: March 2018

Abstract

Forward‐looking partial moment volatility indices are developed using state‐pricing, called the bear index (BEX) and bull index (BUX). Using S&P 500 index (SPX) option prices, we find that BEX and BUX provide superior forecasts for the lower and upper partial moments of future market realised volatility, respectively. We examine the relation between SPX returns and changes in BEX and BUX at the daily level. Results are consistent with the volatility feedback hypothesis. Further, we show that BEX may be more suitable as the ‘investor fear gauge’ than VIX.

Keywords: Lower Partial Moment, Upper Partial Moment, Stateā€Preference Pricing, VIX

Suggested Citation

Liu, Zhangxin (Frank) and O'Neill, Michael J., Partial Moment Volatility Indices (March 2018). Accounting & Finance, Vol. 58, Issue 1, pp. 195-215, 2018, Available at SSRN: https://ssrn.com/abstract=3151112 or http://dx.doi.org/10.1111/acfi.12209

Zhangxin (Frank) Liu (Contact Author)

The University of Western Australia Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Michael J. O'Neill

Bond University - Bond Business School ( email )

Gold Coast
Australia

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