Name
Abstract | ||
|---|---|---|
This paper investigates whether realized and implied volatilities of individual stocks can predict the cross-sectional variation in expected returns. Although the levels of volatilities from the physical and risk-neutral distributions cannot predict future returns, there is a significant relation between volatility spreads and expected stock returns. Portfolio level analyses and firm-level cross-sectional regressions indicate a negative and significant relation between expected returns and the realized-implied volatility spread that can be viewed as a proxy for volatility risk. The results also provide evidence for a significantly positive link between expected returns and the call-put options' implied volatility spread that can be considered as a proxy for jump risk. The parameter estimates from the VAR-bivariate-GARCH model indicate significant information flow from individual equity options to individual stocks, implying informed trading in options by investors with private information. |
Year | DOI | Venue |
|---|---|---|
2009 | 10.1287/mnsc.1090.1063 | Management Science |
Keywords | Field | DocType |
expected return,realized-implied volatility spread,expected stock returns,volatility risk,implied volatility,significant relation,individual equity option,expected stock return,individual stock,implied volatility spread,volatility spreads,volatility spread,private information,parameter estimation,cross section,garch model,realized volatility,information flow | Econometrics,Implied volatility,Realized variance,Economics,Financial economics,Volatility swap,Volatility risk,Microeconomics,Volatility smile,Forward volatility,Volatility (finance),Volatility risk premium | Journal |
Volume | Issue | ISSN |
55 | 11 | 0025-1909 |
Citations | PageRank | References |
4 | 0.87 | 0 |
Authors | ||
2 | ||
Name | Order | Citations | PageRank |
|---|---|---|---|
| Turan G. Bali | 1 | 19 | 4.86 |
| Armen Hovakimian | 2 | 4 | 0.87 |