TY - JOUR
T1 - Implied and realized volatility in the cross-section of equity options
AU - Ammann, Manuel
AU - Skovmand, David
AU - Verhofen, Michael
PY - 2009/9/1
Y1 - 2009/9/1
N2 - Using a complete sample of US equity options, we analyze patterns of implied volatility in the cross-section of equity options with respect to stock characteristics. We find that high-beta stocks, small stocks, stocks with a low-market-to-book ratio, and non-momentum stocks trade at higher implied volatilities after controlling for historical volatility. We find evidence that implied volatility overestimates realized volatility for low-beta stocks, small caps, low-market-to-book stocks, and stocks with no momentum and vice versa. However, we cannot reject the null hypothesis that implied volatility is an unbiased predictor of realized volatility in the cross section.
AB - Using a complete sample of US equity options, we analyze patterns of implied volatility in the cross-section of equity options with respect to stock characteristics. We find that high-beta stocks, small stocks, stocks with a low-market-to-book ratio, and non-momentum stocks trade at higher implied volatilities after controlling for historical volatility. We find evidence that implied volatility overestimates realized volatility for low-beta stocks, small caps, low-market-to-book stocks, and stocks with no momentum and vice versa. However, we cannot reject the null hypothesis that implied volatility is an unbiased predictor of realized volatility in the cross section.
KW - Implied volatility
KW - Realized volatility
UR - http://www.scopus.com/inward/record.url?scp=70450202954&partnerID=8YFLogxK
U2 - 10.1142/S0219024909005440
DO - 10.1142/S0219024909005440
M3 - Journal article
AN - SCOPUS:70450202954
SN - 0219-0249
VL - 12
SP - 745
EP - 765
JO - International Journal of Theoretical and Applied Finance
JF - International Journal of Theoretical and Applied Finance
IS - 6
ER -