Jump risk, stock returns, and slope of implied volatility smile

• 成果类型: Article
• 署名作者: Yan, Shu
• 署名单位: University of South Carolina System; University of South Carolina Columbia
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2010.08.011
• 发表日期: 2011
• 页码: 216-233
• 关键词: Jump risk; stock returns; options; Implied volatility smile; slope

摘要

In the presence of jump risk, expected stock return is a function of the average jump size, which can be proxied by the slope of option implied volatility smile. This implies a negative predictive relation between the slope of implied volatility smile and stock return. For more than four thousand stocks ranked by slope during 1996-2005, the difference between the risk-adjusted average returns of the lowest and highest quintile portfolios is 1.9% per month. Although both the systematic and idiosyncratic components of slope are priced, the idiosyncratic component dominates the systematic component in explaining the return predictability of slope. The findings are robust after controlling for stock characteristics such as size, book-to-market, leverage, volatility, skewness, and volume. Furthermore, the results cannot be explained by alternative measures of steepness of implied volatility smile in previous studies. (C) 2010 Elsevier B.V. All rights reserved.