Option-Implied Volatility Measures and Stock Return Predictability

Xi Fu, Yakup Arisoy (), Mark Shackleton and Mehmet Umutlu
Additional contact information
Xi Fu: University of Liverpool

Post-Print from HAL

Abstract: Using firm-level option and stock data, we examine the predictive ability of option-implied volatility measures proposed by previous studies and recommend the best measure using up-to-date data. Portfolio-level analysis implies significant non-zero risk-adjusted returns on arbitrage portfolios formed on the call -- put implied volatility spread, implied volatility skew, and realized -- implied volatility spread. Firm-level cross-sectional regressions show that the implied volatility skew has the most significant predictive power over various investment horizons. The predictive power persists before and after the 2008 Global Financial Crisis

Keywords: Option-implied volatility; return predictability; Options (Finance)Volatility (Securities); Financial risk; Investments; Risk-return relationships; Prediction models (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Published in Journal of Derivatives, 2016, 24 (1), ⟨10.3905/jod.2016.24.1.058⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:hal:journl:hal-01484672

DOI: 10.3905/jod.2016.24.1.058

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().