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.
LIU, X., PONG, E. S. Y., SHACKLETON, M. B., & ZHANG, Y. (2014). Option-implied volatilities and stock returns : evidence from industry-neutral portfolios. Journal of Portfolio Management, 41(1), 65-77. https://doi.org/10.3905/jpm.2014.41.1.065