INFORMATIONAL CONTENT OF IMPLIED AND HISTORICAL VOLATILITY DURING SUB-PRIME CRISIS

The initial paper had concluded that implied volatility is not a good predictor of the realized volatility, and instead historical volatility does a better job of explaining the realized volatility. Based on our findings from the data during the subprime crisis, we observe that both implied volatility and historical volatility are not efficient predictors of future volatility, but when compared, implied volatility does a better job than historical volatility. Our findings differ from the original research as we used a different time-period, and the findings are in line with logical reasoning as during periods of high volatility, historical volatility does not give any prediction of future volatility as circumstances change drastically.