Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
959846 | Journal of Financial Economics | 2009 | 17 Pages |
Abstract
We study the cross-section of stock option returns by sorting stocks on the difference between historical realized volatility and at-the-money implied volatility. We find that a zero-cost trading strategy that is long (short) in the portfolio with a large positive (negative) difference between these two volatility measures produces an economically and statistically significant average monthly return. The results are robust to different market conditions, to stock risks-characteristics, to various industry groupings, to option liquidity characteristics, and are not explained by usual risk factor models.
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Authors
Amit Goyal, Alessio Saretto,