Option-Implied Volatility Measures and Stock Return Predictability



Fu, , Arisoy, YE, Shackleton, MB and Umutlu, M
(2016) Option-Implied Volatility Measures and Stock Return Predictability. Journal of Derivatives, 24. 58 - 78.

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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.

Item Type: Article
Additional Information: Please add an embargo for this article.
Uncontrolled Keywords: option-implied volatility, volatility skew, return predictability
Depositing User: Symplectic Admin
Date Deposited: 18 Jul 2016 15:17
Last Modified: 20 Nov 2019 00:14
DOI: 10.3905/jod.2016.24.1.058
URI: http://livrepository.liverpool.ac.uk/id/eprint/3002404
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