The Joint Cross Section of Stocks and Options / Byeong-Je An, Andrew Ang, Turan G. Bali, Nusret Cakici.

Format:

Book

Author/Creator:

An, Byeong-Je.

Contributor:

National Bureau of Economic Research.

Ang, Andrew.

Bali, Turan G.

Cakici, Nusret.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19590.

NBER working paper series no. w19590

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

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.

Notes:

Print version record

October 2013.