Publication Type
Working Paper
Version
publishedVersion
Publication Date
1-2019
Abstract
We develop an ex-ante measure of expected stock returns based on analyst price targets. We then show that ex-ante measures of volatility, skewness, and kurtosis implied from stock option prices are positively related to the cross section of ex-ante expected stock returns. While expected returns are related to both the systematic and unsystematic components of volatility, only the unsystematic components of skewness and kurtosis are related to the cross section of expected stock returns after controlling for other variables known to be related to the cross section of expected stock returns or analyst forecast bias.
Keywords
Risk-Neutral Moments, Option-Implied Risk, Ex-Ante Expected Stock Returns, Price Targets
Discipline
Finance and Financial Management
Research Areas
Finance
First Page
1
Last Page
67
Identifier
10.2139/ssrn.2322945
Publisher
Georgetown McDonough School of Business Research Paper
City or Country
Georgetown
Citation
BALI, Turan; HU, Jianfeng; and SCOTT, Murray.
Option Implied Volatility, Skewness, and Kurtosis and the Cross-Section of Expected Stock Returns. (2019). 1-67.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/3611
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2139/ssrn.2322945