On the Autocorrelation of the Stock Market

Abstract

I introduce an index of market return autocorrelation based on the prices of index options and of forward-start index options and implement it at a six-month horizon. The results suggest that the autocorrelation of the S&P 500 index was close to zero before the subprime crisis but was negative in its aftermath, attaining values around -20% to -30%. I speculate that this may reflect market perceptions about the likely reaction, via quantitative easing, of policymakers to future market moves.