Abstract
We investigate the impact of information trading on predicting variation of implied volatility. First, we find that informed traders do trade in the index options market. The predicting biases of implied volatilities on the realized volatility are correlated with the information trading. Second, we find that delta market depth and bid-ask spread are correlated with the predicting variations in implied volatilities. Moreover, the difference between realized and implied volatility, bid-ask spread, and delta market depth are the determinants of price discovery in the option market. Third, the intraday patterns in realized volatility exhibit an inverse J-shape, which induces forecasting biases in implied volatilities. Finally, based on the performance of the volatility trading strategy, the result does not support efficient market hypothesis.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
