Persistent Link:
http://hdl.handle.net/10150/613277
Title:
Option Markets and Stock Return Predictability
Author:
Shang, Danjue
Issue Date:
2016
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
I investigate the information content in the implied volatility spread, which is the spread in implied volatilities between a pair of call and put options with the same strike price and time-to-maturity. By constructing the implied volatility time series for each stock, I show that stocks with larger implied volatility spreads tend to have higher future returns during 2003-2013. I also find that even volatilities implied from untraded options contain such information about future stock performance. The trading strategy based on the information contained in the actively traded options does not necessarily outperform its counterpart derived from the untraded options. This is inconsistent with the previous research suggesting that the information contained in the implied volatility spread largely results from the price pressure induced by informed trading in option markets. Further analysis suggests that option illiquidity is associated with the implied volatility spread, and the magnitude of this spread contains information about the risk-neutral distribution of the underlying stock return. A larger spread is associated with smaller risk-neutral variance, more negative risk-neutral skewness, and seemingly larger risk-neutral kurtosis, and this association is primarily driven by the systematic components in risk-neutral higher moments. I design a calibration study which reveals that the non-normality of the underlying risk-neutral return distribution relative to the Brownian motion can give rise to the implied volatility spread through the channel of early exercise premium.
Type:
text; Electronic Dissertation
Keywords:
Risk-neutral Distribution; Stock Return Predictability; Management; Informational Efficiency
Degree Name:
Ph.D.
Degree Level:
doctoral
Degree Program:
Graduate College; Management
Degree Grantor:
University of Arizona
Advisor:
Lamoureux, Christopher

Full metadata record

DC FieldValue Language
dc.language.isoen_USen
dc.titleOption Markets and Stock Return Predictabilityen_US
dc.creatorShang, Danjueen
dc.contributor.authorShang, Danjueen
dc.date.issued2016-
dc.publisherThe University of Arizona.en
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en
dc.description.abstractI investigate the information content in the implied volatility spread, which is the spread in implied volatilities between a pair of call and put options with the same strike price and time-to-maturity. By constructing the implied volatility time series for each stock, I show that stocks with larger implied volatility spreads tend to have higher future returns during 2003-2013. I also find that even volatilities implied from untraded options contain such information about future stock performance. The trading strategy based on the information contained in the actively traded options does not necessarily outperform its counterpart derived from the untraded options. This is inconsistent with the previous research suggesting that the information contained in the implied volatility spread largely results from the price pressure induced by informed trading in option markets. Further analysis suggests that option illiquidity is associated with the implied volatility spread, and the magnitude of this spread contains information about the risk-neutral distribution of the underlying stock return. A larger spread is associated with smaller risk-neutral variance, more negative risk-neutral skewness, and seemingly larger risk-neutral kurtosis, and this association is primarily driven by the systematic components in risk-neutral higher moments. I design a calibration study which reveals that the non-normality of the underlying risk-neutral return distribution relative to the Brownian motion can give rise to the implied volatility spread through the channel of early exercise premium.en
dc.typetexten
dc.typeElectronic Dissertationen
dc.subjectRisk-neutral Distributionen
dc.subjectStock Return Predictabilityen
dc.subjectManagementen
dc.subjectInformational Efficiencyen
thesis.degree.namePh.D.en
thesis.degree.leveldoctoralen
thesis.degree.disciplineGraduate Collegeen
thesis.degree.disciplineManagementen
thesis.degree.grantorUniversity of Arizonaen
dc.contributor.advisorLamoureux, Christopheren
dc.contributor.committeememberCenderburg, Scotten
dc.contributor.committeememberSias, Richarden
dc.contributor.committeememberWoutersen, Tiemenen
dc.contributor.committeememberLamoureux, Christopheren
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