A Smiling Bear in the Equity Options Market and the Cross-Section of Stock Returns PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download A Smiling Bear in the Equity Options Market and the Cross-Section of Stock Returns PDF full book. Access full book title A Smiling Bear in the Equity Options Market and the Cross-Section of Stock Returns by Hye-hyun Park. Download full books in PDF and EPUB format.
Author: Hye-hyun Park
Publisher:
ISBN:
Category :
Languages : en
Pages : 46
Get Book Here
Book Description
We propose a measure for the convexity of an option-implied volatility curve, IV convexity, as a forward-looking measure of excess tail-risk contribution to the perceived variance of underlying equity returns. Using equity options data for individual U.S.-listed stocks during 2000-2013, we find that the average return differential between the lowest and highest IV convexity quintile portfolios exceeds 1% per month, which is both economically and statistically significant on a risk-adjusted basis. Our empirical findings indicate the contribution of informed options trading to price discovery in terms of the realization of tail-risk aversion in the stock market.
Author: Hye-hyun Park
Publisher:
ISBN:
Category :
Languages : en
Pages : 46
Get Book Here
Book Description
We propose a measure for the convexity of an option-implied volatility curve, IV convexity, as a forward-looking measure of excess tail-risk contribution to the perceived variance of underlying equity returns. Using equity options data for individual U.S.-listed stocks during 2000-2013, we find that the average return differential between the lowest and highest IV convexity quintile portfolios exceeds 1% per month, which is both economically and statistically significant on a risk-adjusted basis. Our empirical findings indicate the contribution of informed options trading to price discovery in terms of the realization of tail-risk aversion in the stock market.
Author: Te-Feng Chen
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
Using forward-looking information in the options market, we introduce a new method for better identifying systematic market risk as a predictor for the cross-section of stock returns. Empirical results show that there is a significantly positive relation between our option-implied beta and subsequent stock returns, in which a long-short portfolio formed on the option-implied beta generates an average monthly risk-adjusted return of 0.96%. In support of its economic significance, we further find that our option-implied beta significantly predicts the future realized betas and that the associated risk premium is a strong predictor of future market returns.
Author: Panayiotis C. Andreou
Publisher:
ISBN:
Category :
Languages : en
Pages : 82
Get Book Here
Book Description
We provide strong evidence that the dispersion of individual stock options trading volume across moneynesses (IDISP) contains valuable information about future stock returns. Stocks with high IDISP consistently underperform those with low IDISP by more than 1% per month. In line with the idea that IDISP reflects dispersion in investors' beliefs, we find that the negative IDISP-return relationship is particularly pronounced around earnings announcements, in high sentiment periods and among stocks that exhibit relatively high short-selling impediments. Moreover, the IDISP effect is highly persistent and robustly distinct from the effects of a large array of previously documented cross-sectional return predictors.
Author: Byeong-Je An
Publisher:
ISBN:
Category : Economics
Languages : en
Pages :
Get Book Here
Book Description
Stocks with large increases in call implied volatilities over the previous month tend to have high future returns while stocks with large increases in put implied volatilities over the previous month tend to have low future returns. Sorting stocks ranked into decile portfolios by past call implied volatilities produces spreads in average returns of approximately 1% per month, and the return differences persist up to six months. The cross section of stock returns also predicts option-implied volatilities, with stocks with high past returns tending to have call and put option contracts which exhibit increases in implied volatility over the next month, but with decreasing realized volatility. These predictability patterns are consistent with rational models of informed trading.
Author: Mark Clements
Publisher:
ISBN:
Category :
Languages : en
Pages : 55
Get Book Here
Book Description
Option prices predict the cross section of equity returns. We show that, unconditionally, the prices of long-dated options contain all the information relevant for predicting returns. Information, however, shifts towards short-dated options when an earnings announcement is imminent and when options are cheap to trade. The difference between short- and long-dated options also predicts the timing of merger announcements. Our results are consistent with option prices reflecting the actions of informed traders, and with these traders optimally choosing option maturities to maximize the value of their information.
Author: Cheekiat Low
Publisher:
ISBN:
Category :
Languages : en
Pages : 37
Get Book Here
Book Description
Many financial decision-makers seem to regard risk as the variability of returns below some pre-specified target and treat above-target variability as a sweetener. The disutility from losses also appears to be larger than the utility from gains. Using some simple metrics of downside bearishness and upside bullishness constructed from semivariances, this paper tests for the empirical content of this asymmetry. Some of these simple metrics are priced in the U.S. stock market. In particular, exploring a composite metric of asymmetric risk reveals that non-linearity in the covariation of stock returns with bullish and bearish states of the market carries a significant price. Also, market premium for bearishness is larger in magnitude than that for bullishness, lending support to the existence of loss aversion in the aggregate. While small-cap stocks tend to be more bearish than bullish, the asymmetric risk effect is not spuriously driven by the size effect. Finally, some results consistent with an aymmetric-risk-based explanation for the puzzles of return momentum and reversal are presented.
Author: Xiaoyan Zhang
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
Get Book Here
Book Description
The shape of the volatility smirk has significant cross-sectional predictive power for future equity returns. Stocks exhibiting the steepest smirks in their traded options underperform stocks with the least pronounced volatility smirks in their options by around 10.9% per year on a risk-adjusted basis. This predictability persists for at least six months, and firms with the steepest volatility smirks are those experiencing the worst earnings shocks in the following quarter. The results are consistent with the notion that informed traders with negative news prefer to trade out-of-the-money put options, and that the equity market is slow in incorporating the information embedded in volatility smirks.
Author: Gurdip Bakshi
Publisher:
ISBN:
Category :
Languages : en
Pages : 49
Get Book Here
Book Description
This article provides several new insights into the economic sources of skewness. First, we document the differential pricing of individual equity options versus the market index, and relate it to variations in return skewness. Second, we show how risk aversion introduces skewness in the risk-neutral density. Third, we derive laws that decompose individual return skewness into a systematic component and an idiosyncratic component. Empirical analysis of OEX options and 30 stocks demonstrates that individual risk-neutral distributions differ from that of the market index by being far less negatively skewed. This paper explains the presence and evolution of risk-neutral skewness over time and in the cross-section of individual stocks.
Author: Yakov Amihud
Publisher: Now Publishers Inc
ISBN: 1933019123
Category : Business & Economics
Languages : en
Pages : 109
Get Book Here
Book Description
Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.
Author: Arturo Bris
Publisher:
ISBN:
Category : Options (Finance)
Languages : en
Pages : 30
Get Book Here
Book Description
We analyze cross-sectional and time series information from forty-seven equity markets around the world, to consider whether short-sales restrictions affect the efficiency of the market, and the distributional characteristics of returns to individual stocks and market indices. Using the approach developed in Morck et.al. (2000) we find significantly more cross-sectional variation in equity returns in markets where short selling is feasible and practiced, controlling for a host of other factors. This evidence is consistent with more efficient price discovery at the individual security level. A common conjecture by regulators is that short-selling restrictions can reduce the relative severity of a market panic. We test this conjecture by examining the skewness of market returns. We find that in markets where short selling is either prohibited or not practiced, returns display significantly less negative skewness, and the frequency of extreme negative returns is lower. On the other hand, the overall volatility of individual returns and market returns is higher
