Essays on the Forecasting Power of Implied Volatility

Essays on the Forecasting Power of Implied Volatility

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In this dissertation, I look at the forecasting power of implied volatility. I decompose implied volatility into a risk component and a sentiment component, and examine the forecasting power of these components for future returns and volatilities of portfolios sorted by important firm characteristics. I find that the forecasting power of implied volatility for returns is higher for higher beta portfolios and for longer horizon holding periods. I also find that the sentiment component of implied volatility has more (less) forecasting power for future returns (volatility) than the risk component.CHAPTER 2 IMPLIED VOLATILITY AND FUTURE PORTFOLIO RETURNS I. Introduction The CBOE Volatility Index (VIX) is a measure of market expectations of stock return volatility over the next 30 calendar days and is calculated from Saamp;Panbsp;...

Title:Essays on the Forecasting Power of Implied Volatility
Author: Prithviraj Shyamal Banerjee
Publisher:ProQuest - 2008

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