Mateus, Cesario and Konsilp, Worawuth (2014) Implied idiosyncratic volatility and stock return predictability. Journal of Mathematical Finance, 4 (5). pp. 338-352. ISSN 2162-2434 (Print), 2162-2442 (Online) (doi:https://doi.org/10.4236/jmf.2014.45032)

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Abstract

This paper investigates the role of volatility on stock return predictability. using 596 stock options traded at the American Stock Exchange and the Chicago Board Options Exchange (CBOE) for the period from January 2001 to December 2010, it examines the relation between different idiosyncratic volatility measures and expected returns for a period that involves both the dotcom bubble and the recent financial crisis. First, it is showed that implied idiosyncratic volatility is the best stock return predictor among the different volatility measures used. Second, cross-section firm-specific characteristics are important on stock returns forecast. Third, we provide evidence that higher short-selling constraints impact negatively stock returns having liquidity the opposite effect.

Item Type:	Article
Uncontrolled Keywords:	Options, Risk Premium, Stocks, Volatility
Faculty / School / Research Centre / Research Group:	Faculty of Business > Department of Accounting & Finance
Last Modified:	14 Oct 2016 09:37
URI:	http://gala.gre.ac.uk/id/eprint/15002

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