Market Timing with Option-Implied Distributions: A Forward-Looking Approach

• 成果类型: Article
• 署名作者: Kostakis, Alexandros; Panigirtzoglou, Nikolaos; Skiadopoulos, George
• 署名单位: University of Liverpool; University of London; University of Piraeus; University of Warwick; City St Georges, University of London
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1110.1346
• 发表日期: 2011
• 页码: 1231-1249
• 关键词: asset allocation; option-implied distributions; Market timing; Performance evaluation; portfolio choice; risk aversion

摘要

We address the empirical implementation of the static asset allocation problem by developing a forward-looking approach that uses information from market option prices. To this end, we extract constant maturity S&P 500 implied distributions and transform them to the corresponding risk-adjusted ones. Then we form optimal portfolios consisting of a risky and a risk-free asset and evaluate their out-of-sample performance. We find that the use of risk-adjusted implied distributions times the market and makes the investor better off than if she uses historical returns' distributions to calculate her optimal strategy. The results hold under a number of evaluation metrics and utility functions and carry through even when transaction costs are taken into account. Not surprisingly, the reported market timing ability deteriorated during the recent subprime crisis. An extension of the approach to a dynamic asset allocation setting is also presented.