Option Returns and the Cross-Sectional Predictability of Implied Volatility
We study the cross-section of realized stock option returns and find an economically important source of predictability in the cross-sectional distribution of implied volatility. A zero-cost trading strategy that is long (short) in straddles with a large positive (negative) forecast of the change in implied volatility forecast produces an economically important and statistically significant average monthly return. The results are robust to different market conditions, to firm risk-characteristics, to various industry groupings, to options liquidity characteristics, and are not explained by linear factor models. Compared to the market prediction, the implied volatility estimate obtained from the cross-sectional forecasting model is a more precise and efficient estimate of future realized volatility.
Amit Goyal Alessio Saretto
Goizueta Business School Emory University The Krannert School Purdue University
国际会议
成都
英文
1-45
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）