The Fed's policy decisions and implied volatility
This study examines how the Fed's monetary policy decisions affect the implied volatility of the S&P 500 index. The results show that stock market uncertainty is significantly affected by the Fed's policy decisions. In particular, we find that implied volatility generally decreases after FOMC meetings, while the relationship between target rate surprises and market uncertainty appears positive. However, our results also suggest that the apparent positive relationship between policy surprises and implied volatility is mostly driven by the volatility‐reducing effects of negative surprises. We further document that implied volatility is affected by both scheduled and unscheduled policy actions, with the scheduled path surprises having the strongest impact on volatility. Finally, our findings indicate that the impact of monetary policy decisions on implied volatility is more pronounced during periods of expansive policy. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark
Year of publication: |
2011
|
---|---|
Authors: | Vähämaa, Sami ; Äijö, Janne |
Published in: |
Journal of Futures Markets. - John Wiley & Sons, Ltd.. - Vol. 31.2011, 10, p. 995-1010
|
Publisher: |
John Wiley & Sons, Ltd. |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Jalonen, Einari, (2010)
-
The FED's policy decisions and implied volatility
Vähämaa, Sami, (2011)
-
What moves option : implied bond market expectations?
Vähämaa, Sami, (2005)
- More ...