The Joint Cross Section of Stocks and Options

Byeong-Je An, Andrew Ang, Turan G. Bali and Nusret Cakici

No 19590, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Stocks with large increases in call implied volatilities over the previous month tend to have high future returns while stocks with large increases in put implied volatilities over the previous month tend to have low future returns. Sorting stocks ranked into decile portfolios by past call implied volatilities produces spreads in average returns of approximately 1% per month, and the return differences persist up to six months. The cross section of stock returns also predicts option-implied volatilities, with stocks with high past returns tending to have call and put option contracts which exhibit increases in implied volatility over the next month, but with decreasing realized volatility. These predictability patterns are consistent with rational models of informed trading.

JEL-codes: C13 G10 G11 G12 G13 G14 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-cfn
Note: AP
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Citations: View citations in EconPapers (3)

Published as Byeong-Je An & Andrew Ang & Turan G. Bali & Nusret Cakici, 2014. "The Joint Cross Section of Stocks and Options," Journal of Finance, American Finance Association, vol. 69(5), pages 2279-2337, October.

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Journal Article: The Joint Cross Section of Stocks and Options (2014)
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