Volatility forecasting in the 90-Day Australian bank bill futures market

Abstract

This study employs a comprehensive data set from the 90-Day Australian Bank Bills Futures market to test the predictive power of the theoretically superior implied volatility against historical volatility. Overall, the volatility forecasting results are in line with previous research into futures markets. Implied volatility is a biased forecaster, historical volatility contains no extra information beyond that contained in implied volatility and the market is relatively efficient. The market tested also has two unique characteristics compared to previous research, futures style margining on the option contracts and geographic location. This, combined with the use of both overlapping and non-overlapping data sets, ensures the results are significant.