Asset Pricing Implications of the Volatility Term Structure
Author | : |
Publisher | : |
Total Pages | : |
Release | : 2015 |
ISBN-10 | : OCLC:939573477 |
ISBN-13 | : |
Rating | : 4/5 (77 Downloads) |
Download or read book Asset Pricing Implications of the Volatility Term Structure written by and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: These implications are consistent with our empirical results. In the last part, we study the relationship between individual stock's volatility term structure and the stock's future return. We use a measure of stock's implied volatility term structure slope, defined as the difference between 3-month and 1-month implied volatility from at-the-money options, to demonstrate that option prices contain important information for the underlying equities. We show that option volatility term structure slopes are significant in explaining future equity returns in the cross-section. And we further find evidence that the implied volatility term structure is a measure of event risk: firms with the most negative volatility term structure are those for which the market anticipates news that may affect stock price within one month. Relevant events include, but are not limited to, earnings announcements.