Abstract
This study investigates information contents of Taiwan volatility index (TVIX) from two perspectives. We test whether TVIX subsumes the information of forecast candidates and further provides additional information not contained in these forecasts through general method of moment (GMM) framework. Different to previous literature, forecast candidates in this paper include information in not only spot but also option markets due to option market may impound more information of future volatility by allowing investors to trade on volatility. Empirical results show that volume has some critical information of realized volatility so that TVIX doesn’t subsume information of all candidates and fails to provide additional information among them. These suggest one may enhance forecast efficiency of volatility index by taking volume information into considerations especially for buyer/seller initiated volume of option. Finally, this paper may have two contributions to literature. First, we re-examine the volatility information in option volume based on two trading behavior and find significant evidences. Second, we provided a new insight into information contents of volatility index to those who are interested.