We find that options on stocks with high default risk earn significantly lower returns than options on low default risk stocks. Read More » In this paper, we show that the difference between the implied volatilities of call and put options on individual equities has strong predictive power for aggregate stock market returns.This predictability is inconsistent with a rational risk premia or liquidity-based explanation.
Our upper bound is uniform, while the lower bound holds for most options likely to be encountered in practical applications.
We further demonstrate the practical effectiveness of our new bounds by showing how the efficiency of the bisection algorithm is improved for a snapshot of SPX options quotes.
Stocks with high option-implied risk-neutral skewness (RNS) have positive abnormal returns driven by rebounds following poor performance.
This performance reversal in past loser stocks also underlies momentum crashes.
Read More » In this paper, we study the contribution of frictions to expected returns (CFER).
Research Paper On N Stock Market
In the presence of market frictions, expected returns will be determined not only by risk factors but also by CFER.Read More » We show that the availability of options to retail investors displaces lottery stocks.We also find that investors are willing to pay substantial premiums only for the lottery characteristics of out-of-the-money options.Most stock exchanges have specific locations where the trades are completed.For the stock of a company to be traded at these exchanges, it must be listed, and to be listed, the company must satisfy certain requirements.Far more corporations list their stock on the NYSE than on the AMEX, however.Nine smaller regional stock exchanges operate in Boston, Massachusetts; Cincinnati, Ohio; Chicago, Illinois; Los Angeles, California; Miami, Florida; Philadelphia, Pennsylvania; Salt Lake City, Utah; San Francisco, California; and Spokane, Washington.Read More » This paper provides empirical evidence that volatility markets are integrated through the time-varying term-structure of variance risk premia.These risk premia predict the returns from selling volatility for different horizons, maturities, and products including variance swaps, straddles, and VIX futures.Read More » We present a new framework to investigate the profitability of trading the volatility spread, the upward bias on implied volatility as an estimator of future realized volatility.The scheme incorporates the first four option-implied moments in a growth-optimal payoff that is statically replicated using a portfolio of options.