Intra-Day Behavior of Treasury Sector Index Option Implied Volatilities Around Macroeconomic Announcements

Posted: 15 Dec 2002

See all articles by Andrea J. Heuson

Andrea J. Heuson

University of Miami - Department of Finance

Tie Su

University of Miami - Department of Finance

Abstract

If option implied volatility is an unbiased, efficient forecast of future return volatility in the underlying asset, then we should be able to predict its path around macroeconomic announcements from responses in cash markets. Regressions show that volatilities rise the afternoon before announcements that move cash markets, and that post-announcement volatilities return to normal as rapidly as cash prices do. Although implied volatilities are predictable, the Treasury options market is efficient since informed traders do not earn arbitrage profits once we account for trading costs.

Suggested Citation

Heuson, Andrea J. and Su, Tie, Intra-Day Behavior of Treasury Sector Index Option Implied Volatilities Around Macroeconomic Announcements. Available at SSRN: https://ssrn.com/abstract=344121

Andrea J. Heuson (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-4362 (Phone)
305-284-4800 (Fax)

Tie Su

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-1885 (Phone)
305-284-4800 (Fax)

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