Implications for Asset Returns in the Implied Volatility Skew

Posted: 16 Feb 2010

See all articles by James Doran

James Doran

University of New South Wales

Kevin Krieger

University of West Florida

Multiple version iconThere are 2 versions of this paper

Date Written: February 16, 2010

Abstract

This study examined the impact on future asset returns of information contained in the implied volatility skew. Future returns are linked to the discrepancy between call and put volatilities of at-the-money options and to the left side of the volatility skew, calculated as the difference between out-of-the-money and at-the-money puts. The findings discourage the use of skew-based measures for forecasting equity returns without fully parsing the skew into its most basic portions.

Keywords: Equity Investments, Fundamental Analysis and Valuation Models, Research Sources, Portfolio Management, Equity Strategies

Suggested Citation

Doran, James and Krieger, Kevin, Implications for Asset Returns in the Implied Volatility Skew (February 16, 2010). Financial Analysts Journal, Vol. 66, No. 1, 2010, Available at SSRN: https://ssrn.com/abstract=1553843

James Doran (Contact Author)

University of New South Wales ( email )

College Rd
Sydney, NSW 2052
Australia

Kevin Krieger

University of West Florida ( email )

11000 University Parkway
Pensacola, FL 32514-5750
United States

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