The Information Content of Short-Term Options

52 Pages Posted: 16 Sep 2019 Last revised: 19 Sep 2019

See all articles by Ioannis Oikonomou

Ioannis Oikonomou

University of Reading - ICMA Centre

Andrei Stancu

University of East Anglia (UEA) - Norwich Business School

Lazaros Symeonidis

Essex Business School, University of Essex

Chardin Wese Simen

University of Liverpool Management School

Date Written: September 1, 2019

Abstract

We exploit weekly options on the S&P 500 index to compute the weekly implied variance. We show that the weekly implied variance is a strong predictor of the weekly realized variance. In an encompassing regression test, it crowds out the information content of the monthly implied variance. Further tests reveal that the weekly implied variance outperforms not only the monthly implied variance but also well-established time series models of realized variance. This result holds both in- and out-of-sample and the forecast accuracy gains are significant.

Keywords: Implied variance, Predictability, Realized variance, Weekly options

JEL Classification: G11, G12

Suggested Citation

Oikonomou, Ioannis and Stancu, Andrei and Symeonidis, Lazaros and Wese Simen, Chardin, The Information Content of Short-Term Options (September 1, 2019). Journal of Financial Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3449205

Ioannis Oikonomou

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Andrei Stancu

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

Lazaros Symeonidis (Contact Author)

Essex Business School, University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Chardin Wese Simen

University of Liverpool Management School ( email )

Management School
University of Liverpool
Liverpool, L69 7ZH
United Kingdom

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