Which beta is best? On the information content of option-implied betas

Rainer Baule, Olaf Korn and Sven Saßning

No 13-11, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

Abstract: Option-implied betas are a promising alternative to historical beta estimators, because they are inherently forward-looking and can incorporate new information immediately and fully. Recently, different implied beta estimators have been developed in previous literature, but very little is known about their properties and information content. This paper presents a first systematic comparison between six different implied beta estimators, which provides some guidance for applications and identifies directions for further improvements. The main results of the empirical study reveal that betas derived from implied variances are better predictors of realized betas than betas obtained from implied skewness, and that cross-sectional information from all stocks in the market improves beta estimation significantly. We also find that option-implied betas generally have a higher information content in periods of relatively high trading activity in options markets.

Keywords: beta; option-implied information (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 G14 G17 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-fmk and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/89792/1/776490702.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:1311

Access Statistics for this paper

More papers in CFR Working Papers from University of Cologne, Centre for Financial Research (CFR) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().