Impact of the U.S. Stock Market Information on the Korea Stock Market Volatility Forecasting

With regards to the U.S. stock market, today’s heavy trading volume makes option implied volatility more informative as compared to the long history of lagged prices in forecasting future return volatility. The U.S. stock market takes advantage of immediate information, which is an evidence of an advanced application of the information technologies. However, for the Korean stock market, today’s heavy trading volume does not necessarily make option-implied volatility more informative than a long history of lagged prices, which is interpreted as a sluggish application of the information technologies. We find the U.S. option implied volatility to be more informative than the Korean option implied volatility when forecasting Korean future return volatility. The foreign traders in the Korean market might have some advantages in terms of information technologies. Nevertheless, during the recent financial crisis, Korea’s high trading volume makes her option implied volatility more informative than the U.S. option implied volatility, which implies a progress in the application of information technologies among the domestic traders in the Korean stock market.