Stock Return Characteristics, Skew Laws, and the Differential Pricing of Individual Equity Options
Nikunj Kapadia and
Review of Financial Studies, 2003, vol. 16, issue 1, 101-143
This article provides several new insights into the economic sources of skewness. First, we document the differential pricing of individual equity options versus the market index and relate it to variations in return skewness. Second, we show how risk aversion introduces skewness in the risk-neutral density. Third, we derive laws that decompose individual return skewness into a systematic component and an idiosyncratic component. Empirical analysis of OEX options and 30 stocks demonstrates that individual risk-neutral distributions differ from that of the market index by being far less negatively skewed. This article explains the presence and evolution of risk-neutral skewness over time and in the cross section of individual stocks. Copyright 2003, Oxford University Press.
References: Add references at CitEc
Citations: View citations in EconPapers (288) Track citations by RSS feed
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
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:oup:rfinst:v:16:y:2003:i:1:p:101-143
Ordering information: This journal article can be ordered from
Access Statistics for this article
Review of Financial Studies is currently edited by Maureen O'Hara
More articles in Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().