Option-Implied Value-at-Risk and the Cross-Section of Stock Returns
Journal
Review of Derivatives Research
ISSN
1380-6645
Type
journal article
Date Issued
2019
Author(s)
Abstract (De)
Based on a novel rescaled option-implied Value-at-Risk (rVaR) measure, we show that option-implied information is priced differently depending on whether it is based on options with strikes close to the current price of the underlying or far-out-of-the-money options. If the rVaR is estimated from options close-to-the-money, i.e., the 50% rVaR, stocks with high risk outperform stocks with low risk by 0.60% per month, in line with downside risk-averse investors. In contrast, if rVaR is estimated from far-out-of-the-money options, i.e., the 90% rVaR, stocks with high risk underperform stocks with low risk by 0.42% per month, implying that stocks with low risk have higher returns in the cross-section of returns. Our results are consistent with investors who prefer reliable information over unreliable information and explain contradictory results of prior studies.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Quantitative Economic Methods
Refereed
Yes
Publisher
Springer
Volume
22
Number
3
Start page
449
End page
474
Pages
25
Subject(s)
Eprints ID
260512