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Abstract

We investigate the information content of trading activity in S&P 500 component stocks, S&P 500 index options and VIX options on the future realized volatility (RV) of S&P 500 index returns and find that the only consistently useful information on the determination of future RV is provided by trading activity in VIX calls. We also find a discernible increase in the level of predictability when investors are more worried, when the level of information asymmetry in the VIX call market is higher, and when the transaction costs of VIX calls are lower, relative to S&P 500 index options.