Abstract

http://ssrn.com/abstract=1515564
 
 

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Implied and Realized Volatility in the Cross-Section of Equity Options


Manuel Ammann


University of St. Gallen - Swiss Institute of Banking and Finance

David Skovmand


University of Aarhus - Business and Social Sciences

Michael Verhofen


University of St. Gallen - Swiss Institute of Banking and Finance


International Journal of Theoretical and Applied Finance, Vol. 12, No. 6, pp. 745-765, 2009

Abstract:     
Using a complete sample of US equity options, we analyze patterns of implied volatility in the cross-section of equity options with respect to stock characteristics. We find that high-beta stocks, small stocks, stocks with a low-market-to-book ratio, and non-momentum stocks trade at higher implied volatilities after controlling for historical volatility. We find evidence that implied volatility overestimates realized volatility for low-beta stocks, small caps, low-market-to-book stocks, and stocks with no momentum and vice versa. However, we cannot reject the null hypothesis that implied volatility is an unbiased predictor of realized volatility in the cross section.

Keywords: Implied volatility, realized volatility

Accepted Paper Series


Not Available For Download

Date posted: December 1, 2009  

Suggested Citation

Ammann, Manuel and Skovmand, David and Verhofen, Michael, Implied and Realized Volatility in the Cross-Section of Equity Options. International Journal of Theoretical and Applied Finance, Vol. 12, No. 6, pp. 745-765, 2009. Available at SSRN: http://ssrn.com/abstract=1515564

Contact Information

Manuel Ammann
University of St. Gallen - Swiss Institute of Banking and Finance ( email )
Rosenbergstrasse 52
St. Gallen, CH-9000
Switzerland
David Skovmand
University of Aarhus - Business and Social Sciences ( email )
Fuglesangs Alle 4
Building 1326, room 111
DK-8210 Aarhus, 8210
Denmark
Michael Verhofen (Contact Author)
University of Saint Gallen - Swiss Institute of Banking and Finance ( email )
Rosenbergstrasse 52
St. Gallen, CH-9000
Switzerland
HOME PAGE: http://www.verhofen.net

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