Journal of Financial Economics Vol. 140 No. 1 2021
Implied volatility duration: A measure for the timing of uncertainty resolution
open access
Abstract
We introduce implied volatility duration (IVD) as a new measure for the timing of uncertainty resolution, with a high IVD corresponding to late resolution. Portfolio sorts on a large cross-section of stocks indicate that investors demand, on average, more than 5% return per year as a compensation for a late resolution of uncertainty. In a general equilibrium model, we show that “late” stocks can only have higher expected returns than “early” stocks if the investor exhibits a preference for early resolution of uncertainty. Our empirical analysis thus provides a purely market-based assessment of the timing preferences of the marginal investor.
- DOI
- 10.1016/j.jfineco.2020.11.003
- Volume
- 140
- Issue
- 1
- Pages
- 127-144
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref