Analysis of the Information Content of Implied Volatility in the Russian Stock Market

Prior studies find that implied volatility includes some incremental information that can be used to predict future realized volatility in developed markets. This paper extends prior works by focusing on analysis of the information content of implied volatility in the Russian emerging market. The object of this research is the implied volatility index RVI, commonly known as the investors' "fear gauge". The volatility forecasts of the GARCH models, the HAR-RV model and RVI were compared by producing Mincer-Zarnowitz regressions to determine the information content of implied volatility. The results show that implied volatility has a high information content and includes all information about future realized volatility that incorporated in GARCH-models, however, HAR-RV forecasts are superior in information content to RVI. In addition, it was revealed that RVI is positively correlated with investors' sentiment variables, and therefore it can be considered as the investors’ “fear gauge”.