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FMA International 2016 Annual Meeting

October 19, 2016 @ 8:00 am - October 22, 2016 @ 5:00 pm

Baeho Kim, CDAR Visiting Researcher, to present at FMA International’s 2016 Annual Meeting
A Smiling Bear in the Equity Options Market and the Cross-section of Stock Returns
Abstract: We propose a measure for the convexity of an option-implied volatility curve, IV convexity, as a forward-looking measure of excess tail-risk contribution to the perceived variance of underlying equity returns. Using equity options data for individual U.S.-listed stocks during 2000-2013, we find that the average return differential between the lowest and highest IV convexity quintile portfolios exceeds 1% per month, which is both economically and statistically significant on a risk-adjusted basis. Our empirical findings indicate that informed options traders anticipating heavier tail risk proactively induce leptokurtic implied distributions of underlying stock returns before equity investors express their tail-risk aversion.



Details

Start:
October 19, 2016 @ 8:00 am
End:
October 22, 2016 @ 5:00 pm
Event Category:
Website:
http://www.fma.org/Vegas/VegasRegStepOne.htm

Venue

Rio Suites Hotel
Las Vegas, NV United States + Google Map
Website:
http://www.fma.org/