Option-Implied Volatility Measures and Stock Return Predictability
Fu, Xi; Arisoy, Eser; Shackleton, Mark; Umutlu, Mehmet (2016), Option-Implied Volatility Measures and Stock Return Predictability, Journal of Derivatives, 24, 1, p. 58-78. 10.3905/jod.2016.24.1.058
Type
Article accepté pour publication ou publiéExternal document link
http://dx.doi.org/10.2139/ssrn.2378969Date
2016Journal name
Journal of DerivativesVolume
24Number
1Pages
58-78
Publication identifier
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Show full item recordAuthor(s)
Fu, XiArisoy, Eser
Dauphine Recherches en Management [DRM]
Shackleton, Mark
Umutlu, Mehmet
Izmir Ekonomi Universitesi
Abstract (EN)
Using firm-level option and stock data, we examine the predictive ability of option-implied volatility measures proposed by previous studies and recommend the best measure using up-to-date data. Portfolio-level analysis implies significant non-zero risk-adjusted returns on arbitrage portfolios formed on the call -- put implied volatility spread, implied volatility skew, and realized -- implied volatility spread. Firm-level cross-sectional regressions show that the implied volatility skew has the most significant predictive power over various investment horizons. The predictive power persists before and after the 2008 Global Financial CrisisSubjects / Keywords
Option-implied volatility; return predictability; Options (Finance)Volatility (Securities); Financial risk; Investments; Risk-return relationships; Prediction modelsRelated items
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