Journal of Financial and Quantitative Analysis Vol. 52 No. 6 2017
Equity Volatility Term Structures and the Cross Section of Option Returns
Abstract
The slope of the implied volatility term structure is positively related to future option returns. I rank firms based on the slope of the volatility term structure and analyze the returns for straddle portfolios. Straddle portfolios with high slopes of the volatility term structure outperform straddle portfolios with low slopes by an economically and statistically significant amount. The results are robust to different empirical setups and are not explained by traditional factors, higher-order option factors, or jump risk.
- DOI
- 10.1017/s002210901700076x
- Volume
- 52
- Issue
- 6
- Pages
- 2727-2754
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref