Macroeconomic factors and index option returns
International Review of Economics & Finance, 2017, vol. 48, issue C, 452-477
This study empirically investigates whether macroeconomic factors are priced in the cross-section of index option returns. Macroeconomic factors are extracted from a large panel of 132 economic activity indicators using dynamic factor analysis. The empirical analysis employs linear factor methodology with a factor structure including market return and macroeconomic factors. The results show that the risk premia on inflation, term spread, industrial production, and housing factors are significant. Further, business sales is a useful conditioning factor that drives variation in market betas. These extracted macroeconomic factors provide information that is not fully captured by Fama and French's (2015) investment and profitability factors.
Keywords: Macroeconomic factors; Option returns; Dynamic factor analysis (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:48:y:2017:i:c:p:452-477
Access Statistics for this article
International Review of Economics & Finance is currently edited by H. Beladi and C. Chen
More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Haili He ().