 Implications for Asset Returns in the Implied Volatility SkewJames S. Doran and Kevin Krieger Financial Analysts Journal, 2010, vol. 66, issue 1, 65-76 Abstract: This study examined the impact on future asset returns of information contained in the implied volatility skew. Future returns are linked to the discrepancy between call and put volatilities of at-the-money options and to the left side of the volatility skew, calculated as the difference between out-of-the-money and at-the-money puts. The findings discourage the use of skew-based measures for forecasting equity returns without fully parsing the skew into its most basic portions.We examine the impact on future asset returns of information contained in the implied volatility skew. Future returns are linked to the discrepancy between call and put volatilities of at-the-money options and to the left side of the volatility skew, calculated as the difference between out-of-the-money and at-the-money puts. The predictability of the volatility skew is found in U.S. and international markets, as well as in equities and ETFs. Our findings discourage the use of skew-based measures for forecasting equity returns without fully parsing the skew into its most basic portions. Date: 2010 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:ufajxx:v:66:y:2010:i:1:p:65-76 Ordering information: This journal article can be ordered from DOI: 10.2469/faj.v66.n1.9 Access Statistics for this article Financial Analysts Journal is currently edited by Maryann Dupes More articles in Financial Analysts Journal from Taylor & Francis Journals |
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