Date of Graduation

Spring 2014

Document Type


Degree Name

Master of Arts in Economics



First Advisor

Prof. Veitch

Second Advisor

Prof. Lau

Third Advisor

Prof. Wong


This paper uses regression analysis to examine the relationship between today's implied volatility on AMD stock options with tomorrow's return on the underlying. An economic analyis of the options markets' micro-structure is discussed to establish the intuition and the basis behind the relationship. Four seperate models are developed to examine its statistical significance and the ability of options' prices to accurately forecast returns on the underlying security.

The hypothesis of the paper is that daily changes in implied volatility can be used to earn higher than expected returns on the underlying stock. I find that implied volatility can be used to increase forecasting accuracy and may proved a means by which the Efficient Markets Hypothesis can be refuted.

Included in

Econometrics Commons