An Intraweek Seasonality in the Implied Volatilities of Individual and Index Options |
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| Authors: | Joel N. Morse |
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| Affiliation: | University of Baltimore, Baltimore, MD 21201–5779. I thank two anonymous referees as well as the participants in the University of Baltimore Finance Seminar for helpful comments. Financial support was received from the University of Baltimore Educational Foundation. I am grateful to Goldman Sachs for data. |
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| Abstract: | This paper studies intraweek seasonalities in the implied volatilities of options on stock market indices. Oneway analysis of variance isolates the daily behavior of implied volatilities. The differential between call implied volatility and put implied volatility tends to drop on Friday and rise on Monday. Relying on a synthetic futures contract created from options, an explanatory model is proposed. The model complements previous research on the difference between the intraweek behavior of stock market indices and that of derivative instruments based on the indices. |
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