Download or read book Does Option Implied Cross Sectional Return Dispersion Forecast Realized Cross Sectional Return Dispersion Evidence from the G10 Currencies written by Klaus Grobys and published by . This book was released on 2016 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study employs option-price data to back out the implied cross-sectional return variance in the G10 currencies. It investigates the relation of implied cross-sectional return dispersion in the currency market and subsequent realized cross-sectional return dispersion. We find that implied cross-sectional return variance, based on option-price data with one-month and three-month maturity, outperforms past cross-sectional return variance in forecasting future cross-sectional return variance.
Download or read book Options Implied Variance and Future Stock Returns written by Hui Guo and published by . This book was released on 2014 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using options-implied variance, a forward-looking measure of conditional variance, we revisit the debate on the idiosyncratic risk-return relation. In both cross-sectional (for individual stocks) and time-series (for the market index) regressions, we find a negative relation between options-implied variance and future stock returns. Consistent with Miller's (1977) divergence of opinion hypothesis, the negative relation gets stronger (1) for stocks with more stringent short-sale constraints or (2) when shorting stocks becomes more difficult. Moreover, the negative correlation of realized idiosyncratic variance or analyst forecast dispersion with future stock returns mainly reflects their close correlation with our conditional idiosyncratic variance measure.
Download or read book Differences in Options Investors Expectations and the Cross Section of Stock Returns written by Panayiotis C. Andreou and published by . This book was released on 2018 with total page 82 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Option Implied Currency Risk Premia written by Jakub W. Jurek and published by . This book was released on 2014 with total page 79 pages. Available in PDF, EPUB and Kindle. Book excerpt: We obtain ex ante estimates of risk premia for G10 currency pairs using cross-sectional data on exchange rate options. Option prices are well-matched by a non-Gaussian, two-factor model, consistent with evidence from realized currency returns. We find that option-implied currency risk premia provide an unbiased forecast of monthly currency excess returns, and achieve cross-sectional forecasting R^2s of up to 44%. Despite prominent non-normalities in option data, less than 20% of the model HML-FX risk premium, or roughly 70bps per annum, is due to the asymmetries and higher-moments of global risks.
Download or read book Return Volatility Cross sectional Dispersion and Trading Activity in the Equity and Futures Markets written by Hendrik Bessembinder and published by . This book was released on 1993 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Disagreement in Option Market and Cross Section Stock Returns written by Cai Zhu and published by . This book was released on 2015 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the paper, we find out that there is a significant relation between option trading volume and open interest distributions across various strike levels and expected stock returns. Specifically, we construct volume and open interest weighted option strike dispersions. Portfolio level analysis and firm-level cross-sectional regression both indicate a negative and significant relation between expected returns and option strike dispersion. The results are consistent with Miller (1977) theory. The option strike dispersion can be regarded as a proxy for investors' belief dispersion. Long-short strategy purchasing stocks with low option strike dispersion and shorting those with high option strike dispersion earns annualized abnormal return 14.05% with sharp ratio 0.79.
Download or read book The Information Content in Implied Idiosyncratic Volatility and the Cross Section of Stock Returns written by Dean Diavatopoulos and published by . This book was released on 2014 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Opposite Sides of a Skewed Bet written by Christian L. Goulding and published by . This book was released on 2018 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt: I test the predictions of a new asset pricing model regarding the interaction of ex-ante return skewness and the dispersion of analysts' earnings forecasts on a sample of U.S. stocks. I present evidence that skewness and forecast dispersion have an interactive pricing impact, that forecast dispersion has no marginal impact unless stocks exhibit ex-ante skewness, and that higher risk or risk aversion is associated with a deepening of their joint effect. The averagereturn gap between stocks in the 5th and 95th percentiles by skewness and dispersion is 1.61% monthly (19.3% annualized). These otherwise anomalous discoveries comprise new cross-sectional features of expected stock returns.
Download or read book Manifestations of Political Uncertainty Around US Presidential Elections written by Alexandros Kostakis and published by . This book was released on 2019 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the effects of political uncertainty around US presidential elections on firm risk, expected return, trading activity, and dispersion of investor beliefs. To this end, we utilize information embedded in short-term options and exploit cross-sectional differences in firms' political features, such as their sensitivity to economic policy uncertainty, their stock returns' exposure to the presidential party, their geographical political alignment with the presidential party, and their political connectedness through campaign contributions. In addition to significant aggregate effects across firms due to political uncertainty, we find that sensitive, exposed, and aligned firms exhibit a substantially higher degree of option-implied price and tail risk, command a higher premium, and feature an increased dispersion of investor beliefs around the presidential election day.
Download or read book Option Implied Equity Risk and the Cross Section of Stock Returns written by Te-Feng Chen and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Foreign Currency Option Pricing and Properties of Ex ante Exchange Rate Variability Changes written by Fatih Akin and published by . This book was released on 1992 with total page 346 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Option Implied Volatility Skewness and Kurtosis and the Cross Section of Expected Stock Returns written by Turan G. Bali and published by . This book was released on 2019 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop an ex-ante measure of expected stock returns based on analyst price targets. We then show that ex-ante measures of volatility, skewness, and kurtosis implied from stock option prices are positively related to the cross section of ex-ante expected stock returns. While expected returns are related to both the systematic and unsystematic components of volatility, only the unsystematic components of skewness and kurtosis are related to the cross section of expected stock returns after controlling for other variables known to be related to the cross section of expected stock returns or analyst forecast bias.
Download or read book Option Implied Volatility Measures and Stock Return Predictability written by Fu, Xi and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Option Implied Betas and the Cross Section of Stock Returns written by Richard D. F. Harris and published by . This book was released on 2018 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the cross-sectional relationship between stock returns and a number of measures of option-implied beta. Using portfolio analysis, we show that the method proposed by Buss and Vilkov (2012) leads to a stronger relationship between implied beta and stock returns than other approaches. However, using the Fama and MacBeth (1973) cross-section regression methodology, we show that the relationship is not robust to the inclusion of other firm characteristics. We further show that a similar result holds for implied downside beta. We therefore conclude that there is no robust relation between option-implied beta and returns.
Download or read book Dispersion of Option implied Risk Measures written by Iwan Lottenbach and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The thesis at hand investigates the risk and predictive value of dispersions computed over option-implied risk measures of individual stocks. The option-implied risk measure calculation rests upon the risk-neutral arbitrage pricing theory and does not assume an underlying pricing model such as Black & Scholes (1973). The analysis relies on a large individual stock and option data panel based on the S&P 500 equity index with observations from January 2000 to December 2012. While Fama & McBeth (1973) regressions - based on 16 risk-neural volatility and skewness ranked portfolios - reveal no statistically significant risk premium for dispersions of option-implied risk measures, the latter factors have a remarkable predictive power for S&P 500 index returns in three months. A mean normalized standard deviation dispersion of risk-neutral volatility (skewness) thereby induces a monthly index return of approximately 13% (3%) in three month. The adjusted R2 of approximately 2% is, furthermore, a considerably good result for a predictive return model. The thesis at hand on dispersion of option-implied risk measures motivates some further research in this field, as the potential of forecasting index returns has gained confidence.
Download or read book Too Good to Be True An Analysis of the Options Market s Reactions to Earnings Releases written by Yan Lu and published by . This book was released on 2016 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using option implied risk neutral return distributions before and after earnings announcements, we study the option market's reaction to extreme events over earnings announcements. While earnings announcements generally reduce short term uncertainty about the stock price, very good news does not reduce uncertainty and slightly bad news actually increases uncertainty. Cross-sectional tests of realized volatility reductions are largely in line with option implied findings, except for cases where very good news is released, which suggests an irrational level of perceived uncertainty in options markets following very good news. We also find that left tail probabilities decrease over earnings releases while right tail probabilities increase. We interpret these findings as evidence of maintained investor expectations that very good news is generally not released during earnings announcements combined with unwarranted skepticism at the release of such news.
Download or read book Implied and Realized Volatility in the Cross section of Equity Options written by Manuel Ammann and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
