Event indices vs. implied volatilities
As demonstrated in Section 3.5, times with the top event index values tend to forecast
increased volatility.
Given that active values of the Thomson Reuters Event Indices typically predict
increased realized volatility, it seems plausible that they could also predict an increase
in implied volatility. The following event study seeks to disprove the null hypothesis that
implied volatility remains the same, on average, before and after a foreign-exchange-
related (FRX) event.
The results of this and other, similar, event studies did not provide evidence to suggest
that FRX news affects the implied 1-month euro volatility. Several other news indices
were studied and similarly could not be shown to impact the implied 1-month euro
volatility.
90 Quantifying news: Alternative metrics
Figure 3.6.EUR realized volatility during 2003–2007 corresponded with the top-161 macro events
(99.99% percentile of index).
Figure 3.7.FRX events during 2005–2007 did not correspond with statistically significant changes
in implied volatility.