Abstract

http://ssrn.com/abstract=239435
 
 

Citations



 


 



Expected Option Returns


Joshua D. Coval


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Tyler Shumway


University of Michigan at Ann Arbor, The Stephen M. Ross School of Business


Journal of Finance

Abstract:     
This paper examines expected option returns in the context of mainstream asset pricing theory. Under mild assumptions, expected call returns exceed those of the underlying security and increase with the strike price. Likewise, expected put returns are below the risk-free rate and increase with the strike price. S&P index option returns consistently exhibit these characteristics. Under stronger assumptions, expected option returns vary linearly with option betas. However, zero-beta, at-the-money straddle positions produce average losses of approximately three percent per week. This suggests that some additional factor, such as systematic stochastic volatility, is priced in option returns.

Accepted Paper Series


Not Available For Download

Date posted: October 16, 2000  

Suggested Citation

Coval, Joshua D. and Shumway, Tyler, Expected Option Returns. Journal of Finance. Available at SSRN: http://ssrn.com/abstract=239435

Contact Information

Joshua D. Coval
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Tyler Shumway (Contact Author)
University of Michigan at Ann Arbor, The Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-4129 (Phone)
734-936-0274 (Fax)
HOME PAGE: http://www.umich.edu/~shumway
Feedback to SSRN


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