ARE VOLATILITY EXPECTATIONS CHARACTERIZED BY REGIME SHIFTS? EVIDENCE FROM IMPLIED VOLATILITY INDICES

composition of asset portfolios is altered.

Finally, the empirical results have important implications for policymaking
market regulation. Given the evidence that the release of new information is usually
following by rapid changes in asset prices and significant increases in trading activity, the
regime-dependencies in market expectations can have some bearing on the scheduled
announcement times of economic reports. It is thus interesting to examine the issue of the
announcement of monetary policy shifts or changes in margin lending regulation are
preceded or followed with regime switches in volatility expectations.

References

Ait-Sahalia, Y. and Lo, A. W. (1998). Nonparametric estimation of state-price densities implicit in
financial asset prices. Journal of Finance, 53, 499-547.

Black, F. and Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political
Economy, 81, 637-659.

Bai, J. and P. Perron, (1998). Estimating and testing linear models with multiple structural changes.
Econometrica, 66, 47-68.

Becker, R., A.E. Clemens and S.I. White, (2006). On the informational efficiency of S&P 500
implied volatility. North America Journal of Economics and Finance, forthcoming.

Blair, B. J., Poon, S. and Taylor, S. J. (2001). Forecasting S&P100 volatility: the incremental
information content of implied volatilities and high frequency index returns. Journal of
Econometrics, 105, 5-26.

Britten-Jones, M. and Neuberger, A. (2000). Option prices, implied price processes and stochastic
volatility. Journal of Finance, 55, 839-866.

Canina, L. and Figlewski S. (1993). The information content of implied volatility. Review of
Financial Studies, 6, 659-681.

Carr, P., and L. Wu, (2006). A tale of two indices. Journal of Derivatives, forthcoming.

Christensen, B. J. and Prabhala, N. R. (1998). The relation between implied and realized volatility.

18

<<   18   19   20   21   22   23   24   >>

More intriguing information