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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 publié
External document link
http://dx.doi.org/10.2139/ssrn.2378969
Date
2016
Journal name
Journal of Derivatives
Volume
24
Number
1
Pages
58-78
Publication identifier
Metadata
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Author(s)
Fu, Xi

Arisoy, 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 Crisis
Subjects / Keywords
Option-implied volatility; return predictability; Options (Finance)Volatility (Securities); Financial risk; Investments; Risk-return relationships; Prediction models
JEL
G00 - General
F30 - General
E30 - General