Cross section of option returns and idiosyncratic stock volatility

• 成果类型: Article
• 署名作者: Cao, Jie; Han, Bing
• 署名单位: Chinese University of Hong Kong; University of Texas System; University of Texas Austin; Peking University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2012.11.010
• 发表日期: 2013
• 页码: 231-249
• 关键词: Option return; idiosyncratic volatility; market imperfections; Limits to arbitrage

摘要

This paper presents a robust new finding that delta-hedged equity option return decreases monotonically with an increase in the idiosyncratic volatility of the underlying stock. This result cannot be explained by standard risk factors. It is distinct from existing anomalies in the stock market or volatility-related option mispricing. It is consistent with market imperfections and constrained financial intermediaries. Dealers charge a higher premium for options on high idiosyncratic volatility stocks due to their higher arbitrage costs. Controlling for limits to arbitrage proxies reduces the strength of the negative relation between delta-hedged option return and idiosyncratic volatility by about 40%. Published by Elsevier B.V.