28 Pages Posted: 4 Sep 2010
Date Written: September 2, 2010
Using a complete sample of US equity options, we find a positive, highly significant relation between stock returns and lagged implied volatilities. The results are robust after controlling for a number of factors such as firm size, market value, analyst recommendations and different levels of implied volatility. Lagged historical volatility is - in contrast to the corresponding implied volatility - not relevant for stock returns. We find considerable time variation in the relation between lagged implied volatility and stock returns.
Keywords: Implied Volatility, Expected Returns
Suggested Citation: Suggested Citation
Ammann, Manuel and Süss, Stephan and Verhofen, Michael, Do Implied Volatilities Predict Stock Returns? (September 2, 2010). Available at SSRN: https://ssrn.com/abstract=1670909 or http://dx.doi.org/10.2139/ssrn.1670909