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F und V olatility I ndex using equity market state prices
Author(s) -
O'Neill Michael J.,
Liu Zhangxin
Publication year - 2017
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12177
Subject(s) - volatility (finance) , skewness , equity (law) , econometrics , economics , monetary economics , financial economics , law , political science
The F und V olatility I ndex ( FVX ) is proposed as a forward measure of volatility with applications in fund hedging and risk management. The method applies equity market state prices to individual fund pay‐offs. FVX is validated as a predictor of short‐term realised volatility for 30 exchange traded funds. Performance of the method is compared with existing methods using a data set of 14 925 non‐traded funds. FVX has lower bias and higher forecast accuracy than existing methods. As a more general measure, it allows for incorporation of terms to capture individual fund skewness and projection of higher moments of returns.