Implied Volatility from Options on Gold Futures: Do Statistical Forecasts Add Value or Simply Paint the Lilly?
55 Pages Posted: 7 May 2004
Date Written: June 2, 2004
Consistent with findings in other markets, implied volatility is a biased predictor of the realized volatility of gold futures. No existing explanation - including a price of volatility risk - can completely explain the bias, but much of this apparent bias can be explained by persistence and estimation error in implied volatility. Statistical criteria reject the hypothesis that implied volatility is informationally efficient with respect to econometric forecasts. But delta hedging exercises indicate that such econometric forecasts have no incremental economic value. Thus, statistical measures of bias and information efficiency are misleading measures of the information content of option prices.
Keywords: gold, futures, option, implied volatility, GARCH, long-memory, ARIMA, high frequency
JEL Classification: F31, G15
Suggested Citation: Suggested Citation