Option-implied volatilities and stock returns : evidence from industry-neutral portfolios

Xiaoquan LIU, Eddie S.Y. PONG, Mark B. SHACKLETON, Yuanyuan ZHANG

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

1 Scopus Citations

Abstract

Recent studies demonstrate the profitability of stock portfolios constructed according to implied volatility measures inferred from option prices. This article examines industry effects on such portfolios' performance. Results show that quintile portfolios constructed using volatility skew and volatility spread are subject to substantial industry effects, which are particularly strong during market turbulence. The authors form industry-neutral portfolios and compare their performances to those of frill-universe portfolios that do not consider industry exposure. Results show significant improvement when portfolio strategies are implemented in an industry-neutral manner, based on either volatility skew or volatility spread.
Original languageEnglish
Pages (from-to)65-77
Number of pages13
JournalJournal of Portfolio Management
Volume41
Issue number1
Early online date31 Oct 2014
DOIs
Publication statusPublished - 2014

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Implied volatility
Industry
Stock returns
Industry effects
Profitability
Turbulence
Option prices
Portfolio performance
Portfolio strategy

Cite this

LIU, Xiaoquan ; PONG, Eddie S.Y. ; SHACKLETON, Mark B. ; ZHANG, Yuanyuan. / Option-implied volatilities and stock returns : evidence from industry-neutral portfolios. In: Journal of Portfolio Management. 2014 ; Vol. 41, No. 1. pp. 65-77.
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Option-implied volatilities and stock returns : evidence from industry-neutral portfolios. / LIU, Xiaoquan; PONG, Eddie S.Y.; SHACKLETON, Mark B.; ZHANG, Yuanyuan.

In: Journal of Portfolio Management, Vol. 41, No. 1, 2014, p. 65-77.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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