Does Option-Implied Cross-Sectional Return Dispersion Forecast Realized Cross-Sectional Return Dispersion? Evidence From the G10 Currencies

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© 2016 Wiley. This is the pre-peer reviewed version of the following article: Grobys, K. & Heinonen, J.‐P. (2016). Does Option‐Implied Cross‐Sectional Return Dispersion Forecast Realized Cross‐Sectional Return Dispersion? Evidence From the G10 Currencies. Journal of Futures Markets 37(1), 3-22, which has been published in final form at https://doi.org/10.1002/fut.21798. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.

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This study employs option‐price data to back out the implied cross‐sectional return variance in the G10 currencies. It investigates the relation of implied cross‐sectional return dispersion in the currency market and subsequent realized cross‐sectional return dispersion. We find that implied cross‐sectional return variance, based on option‐price data with 1‐ and 3‐month maturity, outperforms past cross‐sectional return variance in forecasting future cross‐sectional return variance. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:3–22, 2017

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