A Bound on Expected Stock Returns

• 成果类型: Article
• 署名作者: Kadan, Ohad; Tang, Xiaoxiao
• 署名单位: Washington University (WUSTL); University of Texas System; University of Texas Dallas
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhz075
• 发表日期: 2020
• 页码: 1565
• 关键词: cross-section; risk-aversion; long-run; substitution; volatility; prices

摘要

We present a sufficient condition under which the prices of options written on a particular stock can be aggregated to calculate a lower bound on the expected returns of that stock. The sufficient condition imposes a restriction on a combination of the stock's systematic and idiosyncratic risk. The lower bound is forward-looking and can be calculated on a high-frequency basis. We estimate the bound empirically and study its cross-sectional properties. We find that the bound increases with beta and book-to-market ratio and decreases with size and momentum. The bound provides an economically meaningful signal about future stock returns.