The DOI matches its Crossref record; 28 of the 28 references it cites were found in a registry or an index.
What Does the Individual Option Volatility Smirk Tell Us About Future Equity Returns?
Abstract
The shape of the volatility smirk has significant cross-sectional predictive power for future equity returns. Stocks exhibiting the steepest smirks in their traded options underperform stocks with the least pronounced volatility smirks in their options by 10.9% per year on a risk-adjusted basis. This predictability persists for at least 6 months, and firms with the steepest volatility smirks are those experiencing the worst earnings shocks in the following quarter. The results are consistent with the notion that informed traders with negative news prefer to trade out-of-the-money put options, and that the equity market is slow in incorporating the information embedded in volatility smirks.
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Citations
Cites
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Self-citation
Cited by
… and the Cross-Section of Expected Returns
Harvey, C. R., Liu, Y., & Zhu, H. (2016) · Review of Financial Studies · doi:10.1093/rfs/hhv059 · Cited by 2,119
Institutional investor stability and crash risk: Monitoring versus short-termism?
Callen, J. L., & Fang, X. (2013) · Journal of Banking & Finance · doi:10.1016/j.jbankfin.2013.02.018 · Cited by 734
Financial Reporting Opacity and Expected Crash Risk: Evidence from Implied Volatility Smirks
Kim, J., & Zhang, L. (2014) · Contemporary Accounting Research · doi:10.1111/1911-3846.12048 · Cited by 486
Retail Trading in Options and the Rise of the Big Three Wholesalers
BRYZGALOVA, S., PAVLOVA, A., & SIKORSKAYA, T. (2023) · The Journal of Finance · doi:10.1111/jofi.13285 · Cited by 160
Metadata
- Authors
- Xing, Y., Zhang, X., & Zhao, R.
- Venue
- Journal of Financial and Quantitative Analysis
- Publisher
- Cambridge University Press (CUP)
- Published
- 2010-03-31
- Volume
- 45
- Issue
- 3
- Pages
- 641-662
- ISSN
- 0022-1090 (ISSN-L)
- 1756-6916
- OpenAlex
- W3123326583
- Cited by
- 710
- References
- 28
- FWCI
- 59.74
- Type
- journal article
- Language
- en
- Open access
- closed
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
