Do implied volatilities predict stock returns?

Manuel Ammann, Michael Verhofen () and Stephan Süss
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Michael Verhofen: Allianz Global Investors, Mainzer Landstrasse 11–13

Journal of Asset Management, 2009, vol. 10, issue 4, No 3, 222-234

Abstract: Abstract Using a complete sample of US equity options, we find a positive, highly significant relationship between stock returns and lagged implied volatilities. The results are robust after controlling for a number of factors such as firm size, market valuation, analyst recommendations and different levels of implied volatility. Lagged historical volatility is – in contrast to the corresponding implied volatility – not relevant for stock returns. We find considerable time variation in the relationship between lagged implied volatility and stock returns.

Keywords: implied volatility; expected returns; market efficiency (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (2)

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DOI: 10.1057/jam.2009.14

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