Implied Volatility in Option Prices and the Lead-Lag Relation between Stock and Option Prices

We show that if a particular lead-lag relation exists between the option and stock markets, the implied volatility in option prices can be biased depending on the level of the true volatility. The higher the true volatility, the more upward (downward) biased the implied volatility will be, if the option market leads (lags) the stock market. We present some empirical results on the intraday implied volatility in option prices as an application or evidence of the theory