Corridor Volatility Risk and Expected Returns

Dotsis, George and Vlastakis, Nikolaos ORCID: https://orcid.org/0000-0001-6411-7708 (2016) Corridor Volatility Risk and Expected Returns. Journal of Futures Markets, 36 (5). pp. 488-505. ISSN 0270-7314

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Abstract

This paper examines the pricing of volatility risk using SPX corridor implied volatility. We decompose model-free implied volatility into various components using different segments of the cross-section of out-of-the money put and call option prices. We find that only model-free volatility computed from the cross-section of out-of-the-money call option prices carries a significant negative risk premium in the cross-section of stock returns and subsumes all relevant information for forecasting future volatility. Our empirical results provide strong evidence that SPX out-of-the money put option prices do not contain useful information for pricing aggregate volatility risk in the cross-section of stock returns.

Item Type: Article
Additional Information: Publisher Copyright: © 2015 Wiley Periodicals, Inc.
Uncontrolled Keywords: accounting,business, management and accounting(all),finance,economics and econometrics ,/dk/atira/pure/subjectarea/asjc/1400/1402
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Depositing User: LivePure Connector
Date Deposited: 08 Aug 2022 09:30
Last Modified: 02 Oct 2022 04:57
URI: https://ueaeprints.uea.ac.uk/id/eprint/87122
DOI: 10.1002/fut.21738

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