Volatility Risks and Growth Options

• 成果类型: Article
• 署名作者: Ai, Hengjie; Kiku, Dana
• 署名单位: University of Minnesota System; University of Minnesota Twin Cities; University of Illinois System; University of Illinois Urbana-Champaign
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2014.2129
• 发表日期: 2016
• 页码: 741-763
• 关键词: growth options; idiosyncratic volatility; finance; asset pricing

摘要

We propose to measure growth opportunities by firms' exposure to idiosyncratic volatility news. Theoretically, we show that the value of a growth option increases in idiosyncratic volatility but its response to volatility of aggregate shocks can be either positive or negative depending on option moneyness. Empirically, we show that price sensitivity to variation in idiosyncratic volatility carries significant information about firms' future investment and growth even after controlling for conventional proxies of growth options such as book-to-market and other relevant firm characteristics. Consistent with our theoretical arguments, we also find that firm' exposure to aggregate volatility, while priced, does not help predict their future growth. Option-intensive firms identified using our idiosyncratic volatility-based measure earn a lower premium than do firms that rely more heavily on assets in place.