Option implied volatility measures and stock return predictability

Fu, Xi and Arisoy, Y. Eser and Shackleton, Mark Broughton and Umutlu, Mehmet (2016) Option implied volatility measures and stock return predictability. Journal of Derivatives, 24 (1). pp. 58-78. ISSN 1074-1240

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Abstract

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.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Derivatives
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
80351
Deposited By:
Deposited On:
12 Jul 2016 14:08
Refereed?:
Yes
Published?:
Published
Last Modified:
29 Nov 2020 03:46