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Is firm-level political risk priced in the equity option market?

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

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Is firm-level political risk priced in the equity option market? / Ho, Thang; Kagkadis, Anastasios; Wang, George.
In: Review of Asset Pricing Studies, Vol. 14, No. 1, 31.03.2024, p. 153-195.

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

Harvard

Ho, T, Kagkadis, A & Wang, G 2024, 'Is firm-level political risk priced in the equity option market?', Review of Asset Pricing Studies, vol. 14, no. 1, pp. 153-195. https://doi.org/10.1093/rapstu/raad013

APA

Ho, T., Kagkadis, A., & Wang, G. (2024). Is firm-level political risk priced in the equity option market? Review of Asset Pricing Studies, 14(1), 153-195. https://doi.org/10.1093/rapstu/raad013

Vancouver

Ho T, Kagkadis A, Wang G. Is firm-level political risk priced in the equity option market? Review of Asset Pricing Studies. 2024 Mar 31;14(1):153-195. Epub 2023 Oct 27. doi: 10.1093/rapstu/raad013

Author

Ho, Thang ; Kagkadis, Anastasios ; Wang, George. / Is firm-level political risk priced in the equity option market?. In: Review of Asset Pricing Studies. 2024 ; Vol. 14, No. 1. pp. 153-195.

Bibtex

@article{2aca39a035b64f6f86d06252debe4e01,
title = "Is firm-level political risk priced in the equity option market?",
abstract = "We find a negative relation between firm-level political risk and future delta-hedged equity option returns. A quasi-natural experiment based on Brexit corroborates this finding since after the referendum there is a decrease in the option returns of the positive-Brexit exposure firms. The predictability is driven by the jump risk component of political uncertainty, is more pronounced in periods of high intermediary constraints, and is stronger among high-demand pressure options but weaker among politically active firms. Finally, consistent with a risk-based explanation, investors of options on politically risky firms are compensated with high returns when major unexpected political shocks happen.",
author = "Thang Ho and Anastasios Kagkadis and George Wang",
year = "2024",
month = mar,
day = "31",
doi = "10.1093/rapstu/raad013",
language = "English",
volume = "14",
pages = "153--195",
journal = "Review of Asset Pricing Studies",
issn = "2045-9920",
publisher = "Oxford University Press (OUP)",
number = "1",

}

RIS

TY - JOUR

T1 - Is firm-level political risk priced in the equity option market?

AU - Ho, Thang

AU - Kagkadis, Anastasios

AU - Wang, George

PY - 2024/3/31

Y1 - 2024/3/31

N2 - We find a negative relation between firm-level political risk and future delta-hedged equity option returns. A quasi-natural experiment based on Brexit corroborates this finding since after the referendum there is a decrease in the option returns of the positive-Brexit exposure firms. The predictability is driven by the jump risk component of political uncertainty, is more pronounced in periods of high intermediary constraints, and is stronger among high-demand pressure options but weaker among politically active firms. Finally, consistent with a risk-based explanation, investors of options on politically risky firms are compensated with high returns when major unexpected political shocks happen.

AB - We find a negative relation between firm-level political risk and future delta-hedged equity option returns. A quasi-natural experiment based on Brexit corroborates this finding since after the referendum there is a decrease in the option returns of the positive-Brexit exposure firms. The predictability is driven by the jump risk component of political uncertainty, is more pronounced in periods of high intermediary constraints, and is stronger among high-demand pressure options but weaker among politically active firms. Finally, consistent with a risk-based explanation, investors of options on politically risky firms are compensated with high returns when major unexpected political shocks happen.

U2 - 10.1093/rapstu/raad013

DO - 10.1093/rapstu/raad013

M3 - Journal article

VL - 14

SP - 153

EP - 195

JO - Review of Asset Pricing Studies

JF - Review of Asset Pricing Studies

SN - 2045-9920

IS - 1

ER -