A0280
Title: The information content of short-term options
Authors: Ioannis Oikonomou - University of Reading (United Kingdom)
Andrei Stancu - University of East Anglia (United Kingdom)
Lazaros Symeonidis - University of East Anglia (United Kingdom) [presenting]
Chardin Wese - ICMA Centre, University of Reading (United Kingdom)
Abstract: It is documented that the implied variance of daily and weekly maturities strongly predict next month's realized variance. We introduce the HAR-IV model that jointly uses the daily, weekly and monthly implied variance to predict realized variance. The HAR-IV model outperforms the HAR-RV model both in- and out-of-sample. An investor would pay up to 3.887\% per year to switch from the timing strategy based on the HAR-RV model to the strategy based on the HAR-IV model. Our results are robust to heteroscedastic measurement errors.
