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Implied and Realized Volatility in the Cross-Section of Equity Options

Manuel Ammann, David Skovmand & Michael Verhofen

abstract Using a complete sample of US equity options, we analyze pat-
terns of implied volatility in the cross-section of equity options with
respect to stock characteristics. We …nd 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 histor-
ical volatility. We …nd 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.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1324605
   
type journal paper
   
keywords Implied Volatility, Realized Volatility
   
language English
kind of paper journal article
date of appearance 1-9-2009
journal International Journal of Theoretical and Applied Finance
publisher World Scientific Publishing Company (Singapore)
ISSN 0219-0249
volume of journal 12
number of issue 6
page(s) 745-765
review double-blind review
   
citation Ammann, M., Skovmand, D., & Verhofen, M. (2009). Implied and Realized Volatility in the Cross-Section of Equity Options. International Journal of Theoretical and Applied Finance, 12(6), 745-765.