Volatility puzzles
Subtitle: a unified framework for gauging return-volatility regressions
By: Tim Bollerslev and Hao Zhou.
Contributors: Zhou, Hao, 1967-
Series: Finance and economics discussion series ;; 2003-40; Finance and economics discussion series (Online) ;; 2003-40.
Publisher: Federal Reserve Board
Published: 2003
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Description: "This paper provides a simple unified framework for assessing the empirical linkages between returns and realized and implied volatilities.  First, we show that whereas the volatility feedback effect as measured by the sign of the correlation between contemporaneous return and realized volatility depends importantly on the underlying structural model parameters, the correlation between return and implied volatility is unambiguously positive for all reasonable parameter configurations.  Second, the lagged return-volatility asymmetry, or the leverage effect, is always stronger for implied than realized volatility.  Third, implied volatilities generally provide downward biased forecasts of subsequent realized volatilities.  Our results help explain previous findings reported in the extant empirical literature, and is further corroborated by new estimation results for a sample of monthly returns and implied and realized volatilities for the aggregate S&P market index"--Federal Reserve Board web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 7/23/2004.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.