Download or read book Implied Volatility Sentiment written by Luiz F. F. Felix and published by . This book was released on 2019 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: Low probability events are overweighted in the pricing of out-of-the-money index puts and single stock calls. We show that such a behavioral bias is strongly time-varying and is linked to equity market sentiment and higher moments of the risk-neutral density. We find that our implied volatility (IV) sentiment measure, jointly derived from index and single stock options, explains investors' overweight of tail events well. Our IV-sentiment measure adds value over and above traditional factors in predicting the equity risk premium out-of-sample. When employed as a mean-reversion strategy, our IV-sentiment measure delivers economically significant results, which are more consistent than the ones produced by the conventional sentiment factor. We find that our contrarian investment strategy shows limited exposure to a set of cross-sectional equity factors, including Fama and French's five factors, the momentum factor and the low-volatility factor, and seems valuable in avoiding momentum crashes.

Download or read book Implied Volatility Sentiment a Tale of Two Tails written by Luiz Félix and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Time Varying Relationship of News Sentiment Implied Volatility and Stock Returns written by Lee A. Smales and published by . This book was released on 2016 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: I examine the relationship between aggregate news sentiment, S&P 500 Index returns, and changes in the implied volatility index (VIX). I find a significant negative contemporaneous relationship between changes in VIX and both news sentiment and stock returns. This relationship is asymmetric whereby changes in VIX are larger following negative news and/or stock market declines. VAR analysis of the dynamics and cross-dependencies between variables reveals a strong positive relationship between previous and current period changes in implied volatility and stock returns, while current period and lagged news sentiment has a significant positive (negative) relationship with stock returns (changes in VIX). I develop a simple trading strategy whereby high (low) levels of implied volatility signal attractive opportunities to take long (short) positions in the underlying index, while extremely negative (positive) news sentiment signals opportunities to enter short (long) index positions.

Download or read book The Interaction and Strategy Application Between Implied Volatility Investor Sentiment and Market Index written by and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Investor Sentiment and the Return implied Volatility Relation written by 張純菁 and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book An Investor Sentiment Barometer Greek Implied Volatility Index written by Costas Siriopoulos and published by . This book was released on 2010 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper a new measure of Greek stock market volatility based on the prices of FTSE/ATHEX-20 index options is proposed. Greek Implied Volatility Index is calculated using the model-free methodology that involves option prices summations and is independent from the Black and Scholes pricing formula. The specific method is applied for the first time in a peripheral and illiquid market as the Athens Exchange.The empirical findings of this paper show that the proposed volatility index includes information about future realized volatility beyond that contained in past volatility and in addition, show that there is a statistically significant negative and asymmetric contemporaneous relationship between the returns of the implied volatility index and the underlying equity index. Finally, the volatility transmission effects on the Greek stock exchange from two leading markets, namely the New York Stock Exchange and the Deutsche Bouml;rse, are tested and documented.

Download or read book Volatility Aversion in the Options Market Based on News Sentiment written by Matthias Uhl and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The author identifies and explains asymmetric reactions in implied volatility of S&P 500 Index options across the term structure based on news sentiment. The asymmetry of the reaction is more pronounced for fear (proxied by put options) than for greed (proxied by call options). This asymmetry is termed factor volatility aversion, which is more pronounced the shorter the time to maturity of the option.

Download or read book Investor Sentiments Rational Beliefs and Option Prices written by Panayiotis C. Andreou and published by . This book was released on 2014 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores the impact of investor sentiment on the risk-neutral skewness of S&P 500 index options over the period 1990 to 2011. We decompose the aggregate investor sentiment into an economic fundamentals component that captures investors' rational updating of beliefs and an error in beliefs component that captures investors' expectations not associated with the economic conditions. Our findings reveal a tale of two periods: before June 1997 both the sentiment components affect risk-neutral skewness, while after June 1997 only the fundamentals component is able to explain risk-neutral skewness. Furthermore, the effect of the fundamentals is more pronounced in periods of worsened stock market conditions. By estimating different measures of the slope of the implied volatility smirk, we show that the slope of the calls' implied volatility smirk is driven by investors' expectations about a continuation of recent economic conditions, while the slope of the puts' implied volatility smirk is driven by investors' expectations about a reversal in the economy. Overall, our results highlight the importance of economic fundamentals for explaining the variations in option prices and the pricing kernel.

Download or read book Volatility and Time Series Econometrics written by Mark Watson and published by Oxford University Press. This book was released on 2010-02-11 with total page 432 pages. Available in PDF, EPUB and Kindle. Book excerpt: A volume that celebrates and develops the work of Nobel Laureate Robert Engle, it includes original contributions from some of the world's leading econometricians that further Engle's work in time series economics

Download or read book Factor Momentum Investor Sentiment and Option Implied Volatility Scaling written by Jere Rutanen and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Factor momentum produces robust average returns that exhibit a similar economic magnitude as documented for stock price momentum. To the extent that the PEAD factor captures mispricing, winner factors profit from being long on underpriced stocks and short on overpriced stocks. Oppositely, loser factors' negative exposure to the PEAD factor suggests that loser factors capture mispricing by being long on overpriced stocks and short on underpriced stocks. Option-implied volatility scaling increases both the economic magnitude and statistical significance of factor momentum. Factor momentum is not exposed to the same crashes as stock price momentum and could therefore serve as a hedge for stock price momentum crash risks.

Download or read book Using Option Implied Investor Sentiment Based on Industry Sectors in Equity Trading Strategy written by Juliet Lakhdari and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, the construction of sentiment based sectors indices provides evidence of the role of sentiment on cross-sectors returns. I examine the information content of out-of-money option variables for explaining sectors returns; specifically the put call ratio (volume), the put call ratio (open interest) and the implied volatility ratio, for predicting market returns at the sector level. Using data from 2003 to 2011, I construct ten monthly sector sentiment indices, free of idiosyncratic effects. I observe and analyze the overall effect of sentiment on market returns, the specific sector sentiment effect on sector returns. I found that the lag of the monthly sentiment is a contrarian predictor of the subsequent monthly market return. At the sector level, on the very short term (1 or 2 months lag), the contrarian feature remains, while two positive relation were noted on anterior lags. The sensitivity to sentiment varies in the cross-section, except the telecommunication sentiment that was not found to be significant. On the cross-section, the discrepancies observed as per coefficient suggest the sector are not all subject to the same sentiment (time) and to the same extent (coefficient). A structural break could be observed from 2009, suggesting the financial crisis may have influence investor sentiment. Finally, when assessing the profitability of exploiting the sector sentiment indices, I found that using the sectors sentiment indices may brings positive returns versus a simple buy and hold strategy on the S&P500.

Download or read book Volatility Forecast Using GARCH News Sentiment and Implied Volatility written by Jamie Atkinson and published by . This book was released on 2019 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: Due to its significance, forecasting asset volatility has been an active area of research in recent decades. In this whitepaper we aim to take into account the stylised facts of volatility to improve predictive power of a simple GARCH model. We investigate the power of three GARCH models (GARCH, EGARCH, GJR- GARCH) using implied volatility and news sentiment data as external regressors in order to enhance forecasts of stock return volatility. We also explore the impact of the use of fat-tailed and skewed distributions. Analysis is conducted on 5 constituents of the S&P500. In terms of in-sample performance, the findings suggest that a GJR-GARCH(1,1) model incorporating a student-t distribution, implied volatility and news sentiment data consistently out-performs a simple GARCH(1,1) with a normal distribution. When comparing out-of-sample forecast performance, the enhanced models were able to improve volatility predictions for four out of five stocks.

Download or read book The Effects of Investor Sentiment on Speculative Trading and Prices of Stock and Index Options written by Michael L. Lemmon and published by . This book was released on 2014 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: We find that the demand for stock option positions that increase exposure to the underlying is positively related to measures of investor sentiment and past market returns, while the demand for index options is invariant to these factors. These differences in trading patterns are reflected in differences in the composition of traders in the different types of options -- Options on stocks are actively traded by individual investors, while trades in index options are more often motivated by hedging demands of sophisticated investors. Consistent with a demand based view of option pricing, we find that sentiment is related to time-series variation in the slope of the implied volatility smile of stock options, but has little impact on the prices of index options. The pricing impact is more pronounced in options with a higher concentration of unsophisticated investors and in options with higher hedging costs. Our results provide new evidence factors not related to fundamentals affect price of securities actively traded by noise traders.

Download or read book The Asymmetric Effects of Investor Sentiment written by Chandler Lutz and published by . This book was released on 2016 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use the returns on lottery-like stocks to construct a novel index for investor sentiment in the stock market. This new measure is closely related to previously developed sentiment indicators, but more accurately tracks speculative episodes over the sample period. Using our index, we find that the relationship between sentiment and returns is asymmetric: during bear markets, high sentiment predicts low future returns for the cross-section of speculative stocks and the market overall while the relationship during bull markets is weak and often insignificant. Thus, the results suggest that sophisticated investors only act as corrective force during certain time periods. We also show that our index predicts implied volatility, media pessimism, and mutual fund flows. Overall, our findings are consistent with both the theories and anecdotal accounts of investor sentiment in the stock market.

Download or read book Market Sentiment and the Fama French Factor Premia written by Abul Shamsuddin and published by . This book was released on 2015 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study how market sentiment is dynamically related to a range of risk premia in the short-run, using three measures of sentiment (the implied volatility index, investment advisor sentiment, and individual investor sentiment) and four factor premia (market, size, value, and momentum) for the U.S. market. Based on the generalized impulse-response analysis in a VAR framework, we find that the sentiment measures have weak impacts on risk premia. However, we observe strong feedback effects where these sentiments are led by risk premia. That is, a higher market or size premium makes market participants bullish, while a higher value or momentum premium induces fear among market participants. We also find that three sentiment measures are closely related in the short run; in particular, the advisor sentiment has strong dynamic impacts on the implied volatility and individual investor sentiment.

Download or read book Investor Sentiment Volatility and Stock Return Comovements written by Abhijeet Chandra and published by . This book was released on 2013 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the stock return comovements from two different perspectives, one being trading behaviour-induced return comovements and the other volatility-induced return comovements. Following Baker and Wurglur (2006), we construct an investor sentiment index and examine whether it has relationship with return comovements induced by investor's trading behaviour and market volatility. We find that a correlated trading behaviour along with investor sentiment significantly determines excess stock returns. Also stocks with high volatility exhibit higher return comovement properties compared to low volatilie stocks. In a cross-sectional framework, we find higher level of market uncertainty characterized by more biased investor sentiment induces highly correlated trading behaviour and thereby generates stronger correlated returns, causing stronger return comovements. The findings from our study imply that irrational and idiosyncratic sentiment of market participants, particularly which of investors, causes significant return comovement.

Download or read book Investor Sentiment and Aggregate Volatility Pricing written by Chiraz Labidi and published by . This book was released on 2015 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper aims at providing new insights on the pricing of aggregate volatility risk by incorporating investor sentiment in the relation between sensitivity to innovations in implied market volatility and expected stock returns. Using both cross-sectional and time series analysis, we investigate the effect of the exposure to aggregate volatility risk on stock returns in both high-sentiment and low-sentiment regimes. We find that exposure to aggregate volatility risk is negatively related to returns when sentiment is low. However, this relation loses its significance when sentiment is high. The documented negative relation is robust to controls for other variables and to the use of various sentiment proxies, suggesting that aggregate volatility risk is an independent risk factor only during low sentiment periods.