Implied and realized volatility in the cross-section of equity options
Research output: Contribution to journal › Journal article › Research › peer-review
Using a complete sample of US equity options, we analyze patterns of implied volatility in the cross-section of equity options with respect to stock characteristics. We find that high-beta stocks, small stocks, stocks with a low-market-to-book ratio, and non-momentum stocks trade at higher implied volatilities after controlling for historical volatility. We find evidence that implied volatility overestimates realized volatility for low-beta stocks, small caps, low-market-to-book stocks, and stocks with no momentum and vice versa. However, we cannot reject the null hypothesis that implied volatility is an unbiased predictor of realized volatility in the cross section.
Original language | English |
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Journal | International Journal of Theoretical and Applied Finance |
Volume | 12 |
Issue number | 6 |
Pages (from-to) | 745-765 |
Number of pages | 21 |
ISSN | 0219-0249 |
DOIs | |
Publication status | Published - 1 Sep 2009 |
- Implied volatility, Realized volatility
Research areas
ID: 188789621