Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
960980 | Journal of Financial Markets | 2014 | 25 Pages |
Abstract
I empirically investigate whether macroeconomic uncertainty is a priced risk factor in the cross-section of equity and index option returns. The analysis employs a non-linear factor model, estimated with the Fama-MacBeth methodology, where the macroeconomic uncertainty factor is the return on a long/short portfolio of equity options, built on the basis of how implied volatilities change around macroeconomic announcements. I find that macroeconomic uncertainty is priced in the cross-section of option returns, even after controlling for a number of relevant factors. The results are robust to alternative ways of measuring option returns, and to the non-random pattern of missing returns.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Sirio Aramonte,