Option-Implied Skewness and the Value of Financial Intermediaries

29 Pages Posted: 2 Aug 2021 Last revised: 3 Nov 2021

See all articles by Silvia Bressan

Silvia Bressan

Free University of Bozen-Bolzano - Faculty of Economics and Management

Alex Weissensteiner

Free University of Bolzano Bozen

Date Written: November 3, 2021

Abstract

For a sample of financial intermediaries from the US, we show that corporate value is strongly related to (risk-neutral) option-implied skewness. In contrast, historical (return-based) skewness does not play a role for valuation.
We illustrate that the option-implied skewess predicts observed (ex-post) stock returns better than the historical skewness. As under rational expectations observed (ex-post) returns should on average reflect ex-ante expected return, options are helpful to get insights about company valuation.
These results are confirmed also as we analyze separately ``Globally Systemic Important Financial Institutions'' (GSIFIs).
Our findings for the financial sector are in line with the previous literature that shows the importance of skewness pricing inside non-financial corporations. The data reveal that the correlation between corporate value and option-implied skewness is tighter for the segment of financial technology firms, which is an interesting finding for the most recent research on fin-tech valuation.

Keywords: financial intermediaries, corporate value, stock returns, option-implied skewness

JEL Classification: G21, G32

Suggested Citation

Bressan, Silvia and Weissensteiner, Alex, Option-Implied Skewness and the Value of Financial Intermediaries (November 3, 2021). Available at SSRN: https://ssrn.com/abstract=3896460 or http://dx.doi.org/10.2139/ssrn.3896460

Silvia Bressan (Contact Author)

Free University of Bozen-Bolzano - Faculty of Economics and Management ( email )

Universitaetsplatz
39100 Bozen-Bolzano (BZ), Bozen 39100
Italy

Alex Weissensteiner

Free University of Bolzano Bozen ( email )

Universitätsplatz 1
Bolzano, 39100
+39 0471 013496 (Phone)

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