trade master

Implied volatility is widely believed to be informationally superior to historical volatility, because it is the "market's"forecast offuture volatility. But for S&P 100 index options, the most acively traded contract in the United States, wefind implied volatility to be a poorforecast of subsequent realized

volatility.

In aggregate and across subsamples separated by maturity and strike price, implied volatility has virtually no correlation withfuture volatility, and it does not incorporate the information contained in recent observed volatility.