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Author: Linda Canina
Publisher:
ISBN:
Category : Stock options
Languages : en
Pages : 40
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Author: Linda Canina
Publisher:
ISBN:
Category : Stock options
Languages : en
Pages : 40
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Author: Brandon Julio
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
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Book Description
Previous research has been mixed with respect to whether option implied volatility reflects market expectations about future realized volatility for the underlying asset. This paper uses a previously documented volatility increasing event, the stock split, to investigate the informational content in implied volatility around stock split announcements. We find that the time series profile of implied volatility around stock splits is consistent with the predictions of standard option pricing theory. Option market participants appear to revise their forecasts of future realized volatility permanently upward at the split announcement. In addition, we find that changes in implied volatility at the split announcement provide informative forecasts of changes in realized stock volatility at the ex-date. However, these forecasts are biased and inefficient as other known, firm-specific variables improve the forecasts of changes in realized volatility. The use of intra-daily realized volatility estimates rather than those based on daily observations significantly reduces the bias in predictive regressions.
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Author: Gianna Figà-Talamanca
Publisher:
ISBN:
Category :
Languages : en
Pages : 18
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Author: Parvez Ahmed
Publisher:
ISBN:
Category : Options (Finance)
Languages : en
Pages : 194
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Author: Po-Sheng Chao
Publisher:
ISBN:
Category : Investment analysis
Languages : en
Pages : 140
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Author: Stephen J. Taylor
Publisher:
ISBN:
Category :
Languages : en
Pages : 64
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Book Description
The volatility information content of stock options for individual firms is measured using option prices for 149 U.S. firms during the period from January 1996 to December 1999. Volatility forecasts defined by historical stock returns, at-the-money (ATM) implied volatilities and model-free (MF) volatility expectations are compared for each firm. The recently developed model-free volatility expectation incorporates information across all strike prices, and it does not require the specification of an option pricing model.Our analysis of ARCH models shows that, for one-day-ahead estimation, historical estimates of conditional variances outperform both the ATM and the MF volatility estimates extracted from option prices for more than one-third of the firms. This result contrasts with the consensus about the informational efficiency of options written on stock indices; several recent studies find that option prices are more informative than daily stock returns when estimating and predicting index volatility. However, for the firms with the most actively traded options, we do find that the option forecasts are nearly always more informative than historical stock returns. When the prediction horizon extends until the expiry date of the options, our regression results show that the option forecasts are more informative than forecasts defined by historical returns for a substantial majority (86%) of the firms. Although the model-free (MF) volatility expectation is theoretically more appealing than alternative volatility estimates and has been demonstrated to be the most accurate predictor of realized volatility by Jiang and Tian (2005) for the Samp;P 500 index, the results for our firms show that the MF expectation only outperforms both the ATM implied volatility and the historical volatility for about one-third of the firms. The firms for which the MF expectation is best are not associated with a relatively high level of trading in away-from-the-money options.
Author: Linda Canina
Publisher:
ISBN:
Category : Stock price forecasting
Languages : en
Pages : 47
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Author: Dean Diavatopoulos
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
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Book Description
Current literature is inconclusive as to whether idiosyncratic risk influences future stock returns and the direction of the impact. Prior studies are based on historical realized volatility. Implied volatilities from option prices represent the market's assessment of future risk and are likely a superior measure to historical realized volatility. We use implied idiosyncratic volatilities on firms with traded options to examine the relation between idiosyncratic volatility and future returns. We find a strong positive link between implied idiosyncratic risk and future returns. After considering the impact of implied idiosyncratic volatility, historical realized idiosyncratic volatility is unimportant. This performance is strongly tied to small size and high book-to-market equity firms.
Author: Jörg Stephan Cyriax
Publisher:
ISBN:
Category :
Languages : en
Pages :
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This thesis extends the findings on implied moments in equity markets to commodities and presents supporting evidence for demand-based option pricing and informed trading. Different implied moments measured by various metrics which are calculated based on a set of maturities and moneyness levels as well as their innovations are subject of the presented investigations. The sample comprises the 24 GSCI commodities in the period from January 2006 until June 2017. Several portfolio sorts and additional predictive fixed effects panel regressions confirm an economically and statistically significant negative predictive ability of innovations of relative implied skewness which increases with maturity and distance from at-the-money. This predictive ability is almost purely driven by the anticipation of lower returns, i.e. downside jump risk. A low-minus-high trading strategy based on innovations of implied skewness is constructed returning 11.90\% p.a. (after transaction costs of 0.033\% per trade and with 50\% collateralization) which cannot be explained by common commodity factors. The underlying predictive ability can be reasoned with better information of some market participants (informed trading) whose option demand causes the implied volatility smile to adjust accordingly. Eventually, concurrent and predictive effects of implied volatility and implied skewness for the commodity basis are found which may lay the foundation for extending the implied moments-related research to physical variables.
Author: John Leo Saranchuk
Publisher:
ISBN:
Category : Financial futures
Languages : en
Pages : 144
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