پویایی نوسانات ضمنی در بازار ارز خارجی

The purpose of this study is to examine the dynamics of implied volatilities derived from the major currency options on futures. Several studies have examined the properties of implied volatilities in the equity and interest markets. However, very little is known about the dynamics of implied volatilities derived from the currency options markets, which is the subject of this paper. The results show that participants in the currency market tend to expect higher future volatility when the currency market fluctuates in a large scale regardless of the direction, implying that uncertainty, as measured by implied volatility, would be higher when movements of exchange rates are large. We also provide evidence that in the foreign exchange markets, the traders’ trading pattern, or the private information, in addition to the public information, also drive the intraweek implied volatility patterns. Finally, we document that it would be difficult to earn abnormal trading profits with portfolios based on the observed patterns of implied volatilities, and conclude that the foreign exchange options on futures market is efficient in this sense.

The standard option pricing models do not evaluate the market’s expectation of future volatility, but we can obtain the expectation by inverting the observed option price. This implied volatility is widely believed to be the market’s best forecast regarding the future volatility over the remaining life of the option. A number of studies have focused on this predictive power of implied volatility. In the equity market, for example, Day and Lewis (1992) show that the implied volatility contains incremental information relative to the conditional volatility from GARCH models while Canina and Figlewski (1993) find that implied volatility has little predictive power for future volatility. More recent studies, such as Fleming et al., 1995, Christensen and Prabhala, 1998 and Fleming, 1998, and Bates (2000), however, confirm that implied volatility outperforms other volatility measures in forecasting future volatility although there is some evidence that it is a biased forecast. Jorion (1995) also reports the similar findings in the currency options markets. A group of other studies have examined the statistical dynamics of implied volatility to understand its behavior. Harvey and Whaley (1992) study the implied volatility of the S&P 100 index option and report that implied volatility changes are not unpredictable. They also document that implied volatilities tend to fall on Fridays and rise on Mondays. Fleming et al. (1995), however, find virtually no intraweek seasonality with the CBOE Market Volatility Index (VIX), an average of S&P 100 option implied volatilities. In addition, they show that VIX is inversely related to the contemporaneous S&P 100 index returns, and that both daily and weekly VIX changes are more sensitive to the negative than the positive stock market moves. In a study of Treasury bond option market Simon (1997) also reports similar implied volatility asymmetries. From a different perspective Ederington and Lee (1996) show that the implied volatilities in the Treasury bond and Eurodollar options on futures markets tend to decline on the days with scheduled macroeconomic announcements, which are also responsible for the intraweek patterns of implied volatilities. However, very little is known about the properties of implied volatility derived from the currency options, which are the subject of this paper1. Specifically, we explore the temporal relationship between changes in implied volatility from the currency options on futures and the corresponding underlying future returns. We also study the impact of scheduled macroeconomic announcements on the changes in implied volatility, and intraweek patterns in the presence of announcement day effect. We finally test whether one can obtain abnormal trading profits with a trading strategy based on the observed implied volatility patterns. The results of this study have important implications for option traders who need to better understand the behavior of implied volatilities for valuation purposes. This paper is also a comprehensive study on the dynamics of implied volatility in the foreign exchange markets with a daily data set which covers 12 years from 1987 till 1998 for the actively traded currency options on futures contracts of Deutsche mark, Japanese yen, Swiss franc, British pound, and Canadian dollar. In addition, the use of implied volatility from the options on futures helps avoid the problems associated with the implied volatility from options on cash markets, such as price difference in the cash market due to bid–ask spreads and different closing times between cash and option markets. The paper is organized as follows: Section 2 describes the data and the estimation of implied volatility. Section 3 is the descriptive statistics of the implied volatility and underlying futures. Section 4 reports the relationship between volatility changes and futures returns. Section 5 examines the impact of announcement day to the implied volatility and the intraweek patterns. The final section concludes the paper.

Several studies have examined the properties of implied volatilities in the equity and interest markets. However, very little is known about the dynamics of implied volatilities derived from the currency options markets, which is the subject of this paper. Specifically, we explore the temporal relationship between changes in implied volatility from the currency futures options and underlying future returns. We also study the impact of scheduled macroeconomic announcements and the intraweek seasonality in the presence of announcement day effect. We finally test whether one can obtain abnormal trading profits with a trading strategy based on the observed implied volatility patterns. This paper is a comprehensive study on the dynamics of implied volatility in the foreign exchange markets with a data set which covers 12 years—from 1987 till 1998—for the actively traded currency options on futures. The estimation results show that participants in the currency market tend to expect higher future volatility when the currency market fluctuates on a large scale regardless of the direction. In other words, both the larger appreciation and depreciation of US dollar against foreign currencies would bring the higher implied volatility. Thus, we can conjecture that uncertainty, as measured by implied volatility, would be higher when movements of exchange rates are large. Especially for DM, JY and SF the magnitude of increase in implied volatility is larger when the value of the US dollar is falling against these currencies (when the currency future price is increasing). One implication of the finding is that participants in the foreign exchange market would form the expected future volatility in different ways from those in equity and bond markets. We also document that the implied volatilities tend to be low in the early part of the week while they remain high in the later part of the week from Wednesdays. However when any of the scheduled macroeconomic announcements are made during the week, the implied volatilities rather remain unchanged or decline from the previous day. This is in line with E&L’s hypothesis that the uncertainty is resolved as information is released on the announcement days. This announcement day effect, however, fails to explain significantly low implied volatilities on Mondays since relatively few macroeconomic announcements are scheduled on Mondays. The low implied volatilities on Mondays and high implied volatilities from Wednesdays through Fridays when there are no scheduled announcements are probably due to the trading patterns in the foreign exchange markets; traders are reluctant to take positions in the earlier part of the week to get a feel for the market, and begin actively to take positions in the later part of the week. This implies that in the foreign exchange markets, the traders’ trading pattern, or the private information, in addition to the public information, also drives the intraweek implied volatility patterns. Finally, we document that it would be difficult to earn abnormal trading profits with portfolios based on the observed patterns of implied volatilities, and conclude that the foreign exchange options on futures market is efficient in this sense.