Spot and forward volatility in foreign exchange

• 成果类型: Article
• 署名作者: Della Corte, Pasquale; Sarno, Lucio; Tsiakas, Ilias
• 署名单位: University of Guelph; University of Warwick; City St Georges, University of London
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2011.01.007
• 发表日期: 2011
• 页码: 496-513
• 关键词: IMPLIED VOLATILITY; Foreign exchange; Forward volatility agreement; Unbiasedness; Volatility speculation

摘要

This paper investigates the empirical relation between spot and forward implied volatility in foreign exchange. We formulate and test the forward volatility unbiasedness hypothesis, which may be viewed as the volatility analogue to the extensively researched hypothesis of unbiasedness in forward exchange rates. Using a new dataset of spot implied volatility quoted on over-the-counter currency options, we compute the forward implied volatility that corresponds to the delivery price of a forward contract on future spot implied volatility. This contract is known as a forward volatility agreement. We find strong evidence that forward implied volatility is a systematically biased predictor that overestimates movements in future spot implied volatility. This bias in forward volatility generates high economic value to an investor exploiting predictability in the returns to volatility speculation and indicates the presence of predictable volatility term premiums in foreign exchange. (C) 2011 Elsevier B.V. All rights reserved.