Implied volatility and the cross section of stock returns in the UK

Date published

2019-01-14

Free to read from

Supervisor/s

Journal Title

Journal ISSN

Volume Title

Publisher

Elsevier

Department

Type

Article

ISSN

0275-5319

Format

Citation

Poshakwale SS, Chandorkar P, Agarwal V. (2019) Implied volatility and the cross section of stock returns in the UK. Research in International Business and Finance, Volume 48, April 2019, pp. 271-286

Abstract

The paper examines the relationship and the cross-sectional asset pricing implications of risk arising from the innovations in the short and the long-term implied market volatility on excess returns of the FTSE100 and the FTSE250 indices and the 25 value-weighted Fama-French style portfolios in the UK. Findings suggest that after controlling for valuation, macroeconomic, leading economic and business cycle indicators, returns exhibit a strong negative relationship with the innovations in both the short and the long-term implied market volatility. The cross-sectional regression provides new evidence that changes in both short and long-term implied market volatility are significant asset pricing factors with negative prices of risk, which suggests that (i) investors care about ex-ante volatility and (ii) they are willing to pay for insurance for future uncertainty.

Description

Software Description

Software Language

Github

Keywords

VFTSE, Excess Returns, Asset Pricing, Business Cycle, ICAPM, implied volatility

DOI

Rights

Attribution-NonCommercial-NoDerivatives 4.0 International

Relationships

Relationships

Supplements

Funder/s