2022July.pdf (683.86 kB)
Firm fundamentals and the cross-section of implied volatility shapes
journal contribution
posted on 2023-06-10, 04:20 authored by Ding Chen, Biao Guo, Guofu ZhouWith machine learning tools, we document that firm fundamentals have explanatory power on the shape of the option implied volatility(IV) curve that is both economically and statistically significant. We also find that, after accounting for fundamentals, the associated IV process can generate overreaction in the long-term IV with respect to change in the short-term IV, and can allow a positive profit from at-the-money straddle writing, explaining puzzling patterns in the literature. We also provide a simple model linking the IV to firm fundamentals, which permits realistic IV curves and is consistent with the empirical findings.
History
Publication status
- Published
File Version
- Accepted version
Journal
Journal of Financial MarketsISSN
1386-4181Publisher
ElsevierExternal DOI
Page range
1-22Department affiliated with
- Accounting and Finance Publications
Research groups affiliated with
- Quantitative International Finance Network Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2022-07-27First Compliant Deposit (FCD) Date
2022-07-26Usage metrics
Categories
No categories selectedKeywords
Licence
Exports
RefWorks
BibTeX
Ref. manager
Endnote
DataCite
NLM
DC