Abstract
A bad time is often accompanied by a prolonged period of high implied volatility of put (v.s. call) options at the short (v.s. long) maturity. In this paper, we study the information content of this term structure of implied volatility spread. We construct a slope measure (spc) by regressing at-the-money put-over-call implied volatility ratio on the maturity, and theoretically and empirically show that is negatively related to the expected return. In the time-series, significantly and negatively predicts aggregate stock market return. From the hedging perspective, the exposure to spc (slope beta, or βslope) negatively predicts stock returns in the cross-section. High-βslope stocks significantly underperform low-βslope stocks by 0.51% (0.74%) per month under equal (value) weight, which is not explained by various factor models and robust to various stock characteristics as controls.
| Original language | English |
|---|---|
| Number of pages | 48 |
| Publication status | Published - 7 Jul 2023 |
| Event | 2023 China International Conference in Finance (CICF 2023) - Hybrid, Shanghai, China Duration: 6 Jul 2023 → 9 Jul 2023 https://www.cicfconf.org/ |
Conference
| Conference | 2023 China International Conference in Finance (CICF 2023) |
|---|---|
| Country/Territory | China |
| City | Shanghai |
| Period | 6/07/23 → 9/07/23 |
| Internet address |
Bibliographical note
Information for this record is supplemented by the author(s) concerned.Research Keywords
- Term structure of implied volatility spread
- return predictability
- time-series
- cross-section
- ICAPM