• The Korean Journal of Financial Management
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• v.22 no.2
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• pp.91-105
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• 2005

Using Campa and Chang's Expectations Hypothesis model, We test the expectations hypothesis in the term structure of volatilities in options on KOSPI 200 by using daily dosing prices from January 1999 to December 2003. In particular, it addresses whether long-dated volatilities are consistent with expected future short-dated volatilities, assuming rational expectation. Our results do not support the expectations hypothesis : long-term volatilities rise relative to short-term volatilities, but the increases are not matched as predicted by the expectations hypothesis. In addition, an increase in the current long-term volatilities relative to the current short-term volatilities is followed by at a random.