Which Beta is Best? On the Information Content of Option‐Implied Betas

34 Pages Posted: 6 Jun 2016

See all articles by Rainer Baule

Rainer Baule

University of Hagen

Olaf Korn

University of Goettingen (Gottingen)

Sven Sassning

University of Goettingen (Gottingen)

Date Written: June 2016

Abstract

Option‐implied betas are a promising alternative to historical beta estimators, because they are inherently forward‐looking and can incorporate new information immediately and fully. Recently, different implied beta estimators have been developed, but very little is known about their properties and information content. This paper presents a first systematic comparison between six different implied beta estimators, providing guidance for applications and identifying directions for further improvement. The analysis identifies explanatory factors for the predictive performance of implied estimators both in the cross section of stocks and over time. Furthermore, the analysis reveals patterns in the term structure of implied betas.

Keywords: beta, option‐implied information

Suggested Citation

Baule, Rainer and Korn, Olaf and Sassning, Sven, Which Beta is Best? On the Information Content of Option‐Implied Betas (June 2016). European Financial Management, Vol. 22, Issue 3, pp. 450-483, 2016. Available at SSRN: https://ssrn.com/abstract=2789884 or http://dx.doi.org/10.1111/eufm.12065

Rainer Baule (Contact Author)

University of Hagen ( email )

Universitaetsstrasse 41
Hagen, 58097
Germany

Olaf Korn

University of Goettingen (Gottingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany
++49 551 39 7265 (Phone)
++49 551 39 7665 (Fax)

Sven Sassning

University of Goettingen (Gottingen) ( email )

Wilhelmsplatz 1
Göttingen, 37073
Germany

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