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Option implied volatility measures and stock return predictability

Research output: Contribution to Journal/Magazine › Journal article › peer-review

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Option implied volatility measures and stock return predictability. / Fu, Xi; Arisoy, Y. Eser; Shackleton, Mark Broughton et al.
In: Journal of Derivatives, Vol. 24, No. 1, 01.08.2016, p. 58-78.

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Harvard

Fu, X, Arisoy, YE, Shackleton, MB & Umutlu, M 2016, 'Option implied volatility measures and stock return predictability', Journal of Derivatives, vol. 24, no. 1, pp. 58-78. https://doi.org/10.3905/jod.2016.24.1.058

APA

Fu, X., Arisoy, Y. E., Shackleton, M. B., & Umutlu, M. (2016). Option implied volatility measures and stock return predictability. Journal of Derivatives, 24(1), 58-78. https://doi.org/10.3905/jod.2016.24.1.058

Vancouver

Fu X, Arisoy YE, Shackleton MB, Umutlu M. Option implied volatility measures and stock return predictability. Journal of Derivatives. 2016 Aug 1;24(1):58-78. doi: 10.3905/jod.2016.24.1.058

Author

Fu, Xi ; Arisoy, Y. Eser ; Shackleton, Mark Broughton et al. / Option implied volatility measures and stock return predictability. In: Journal of Derivatives. 2016 ; Vol. 24, No. 1. pp. 58-78.

Bibtex

@article{2e430128386740518b3f6fba409a9fdb,
title = "Option implied volatility measures and stock return predictability",
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.",
keywords = "option-implied volatility, volatility skew, return predictability",
author = "Xi Fu and Arisoy, {Y. Eser} and Shackleton, {Mark Broughton} and Mehmet Umutlu",
year = "2016",
month = aug,
day = "1",
doi = "10.3905/jod.2016.24.1.058",
language = "English",
volume = "24",
pages = "58--78",
journal = "Journal of Derivatives",
issn = "1074-1240",
publisher = "Institutional Investor, Inc",
number = "1",

}

RIS

TY - JOUR

T1 - Option implied volatility measures and stock return predictability

AU - Fu, Xi

AU - Arisoy, Y. Eser

AU - Shackleton, Mark Broughton

AU - Umutlu, Mehmet

PY - 2016/8/1

Y1 - 2016/8/1

N2 - 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.

AB - 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.

KW - option-implied volatility

KW - volatility skew

KW - return predictability

U2 - 10.3905/jod.2016.24.1.058

DO - 10.3905/jod.2016.24.1.058

M3 - Journal article

VL - 24

SP - 58

EP - 78

JO - Journal of Derivatives

JF - Journal of Derivatives

SN - 1074-1240

IS - 1

ER -