Partial moment volatility indices

Zhangxin (Frank) Liu, M.J. O'Neill

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

Forward-looking partial moment volatility indices are developed using state-pricing, called the bear index (BEX) and bull index (BUX). Using S&P 500 index (SPX) option prices, we find that BEX and BUX provide superior forecasts for the lower and upper partial moments of future market realised volatility, respectively. We examine the relation between SPX returns and changes in BEX and BUX at the daily level. Results are consistent with the volatility feedback hypothesis. Further, we show that BEX may be more suitable as the investor fear gauge' than VIX.

Original languageEnglish
Pages (from-to)195-215
Number of pages21
JournalAccounting and Finance
Volume58
Issue number1
DOIs
Publication statusPublished - Mar 2018

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