Cashing in on Fear: Implied Jump Risk Premium and the Cross-Section of Option Returns

2011 ◽  
Author(s):  
Mishuk Chowdhury ◽  
Peter P. Lung ◽  
J. David David Diltz
Keyword(s):  
Cross Section ◽  
Risk Premium ◽  
Jump Risk ◽  
Option Returns ◽  
The Cross

Equity Volatility Term Structures and the Cross Section of Option Returns

2017 ◽  
Vol 52 (6) ◽  
pp. 2727-2754 ◽  
Author(s):  
Aurelio Vasquez
Keyword(s):  
Term Structure ◽  
Cross Section ◽  
Implied Volatility ◽  
Higher Order ◽  
Jump Risk ◽  
Option Returns ◽  
Term Structures ◽  
Order Option ◽  
The Cross

The slope of the implied volatility term structure is positively related to future option returns. I rank firms based on the slope of the volatility term structure and analyze the returns for straddle portfolios. Straddle portfolios with high slopes of the volatility term structure outperform straddle portfolios with low slopes by an economically and statistically significant amount. The results are robust to different empirical setups and are not explained by traditional factors, higher-order option factors, or jump risk.

Consumption Risk and the Cross-Section of Option Returns

2018 ◽  
Author(s):  
Kevin Aretz ◽  
Hening Liu ◽  
Shuwen Yang ◽  
Yuzhao Zhang
Keyword(s):  
Cross Section ◽  
Option Returns ◽  
The Cross ◽  
Consumption Risk

The Cross Section of Expected Returns with MIDAS Betas

2011 ◽  
Vol 47 (1) ◽  
pp. 115-135 ◽  
Author(s):  
Mariano González ◽  
Juan Nave ◽  
Gonzalo Rubio
Keyword(s):  
Cross Section ◽  
Risk Premium ◽  
Market Risk ◽  
Ordinary Least Squares ◽  
Mixed Data ◽  
Expected Returns ◽  
Data Sampling ◽  
Cross Sectional ◽  
Market Risk Premium ◽  
The Cross

AbstractThis paper explores the cross-sectional variation of expected returns for a large cross section of industry and size/book-to-market portfolios. We employ mixed data sampling (MIDAS) to estimate a portfolio’s conditional beta with the market and with alternative risk factors and innovations to well-known macroeconomic variables. The market risk premium is positive and significant, and the result is robust to alternative asset pricing specifications and model misspecification. However, the traditional 2-pass ordinary least squares (OLS) cross-sectional regressions produce an estimate of the market risk premium that is negative, and significantly different from 0. Using alternative procedures, we compare both beta estimators. We conclude that beta estimates under MIDAS present lower mean absolute forecasting errors and generate better out-of-sample performance of the optimized portfolios relative to OLS betas.

(Il)liquidity Premium in Credit Markets: A Myth?

2019 ◽  
Keyword(s):  
Cross Section ◽  
Risk Premium ◽  
Credit Markets ◽  
Corporate Bonds ◽  
Credit Spreads ◽  
Limited Evidence ◽  
Liquidity Premium ◽  
Multiple Measures ◽  
The Cross ◽  
Sharpe Ratios

Across multiple measures of “liquidity” and a variety of methods to control for correlated characteristics of more- (less-) liquid bonds, the authors find only limited evidence of a liquidity premium in the cross section of corporate bonds. Specifically, although illiquid bonds have slightly higher credit spreads and directionally higher average returns, portfolios that tilt toward (away from) less (more) liquid bonds exhibit considerably higher levels of volatility. Economically, the low Sharpe ratios of illiquidity factor–mimicking portfolios are hard to justify for an investor. This is puzzling, as theory suggests investors should demand a risk premium for holding less-liquid assets.

scholarly journals Sign realized jump risk and the cross-section of stock returns: Evidence from China's stock market

PLoS ONE ◽  
2017 ◽  
Vol 12 (8) ◽  
pp. e0181990 ◽  
Author(s):  
Youcong Chao ◽  
Xiaoqun Liu ◽  
Shijun Guo
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Cross Section ◽  
Jump Risk ◽  
The Cross
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