Abstract
Using a complete sample of US equity options, we find a positive, highly significant relationship between stock returns and lagged implied volatilities. The results are robust after controlling for a number of factors such as firm size, market valuation, analyst recommendations and different levels of implied volatility. Lagged historical volatility is – in contrast to the corresponding implied volatility – not relevant for stock returns. We find considerable time variation in the relationship between lagged implied volatility and stock returns.
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Acknowledgements
We thank the editor, an anonymous reviewer, Sebastien Betermier, Peter Feldhütter, Thomas Gilbert, Sara Holland, Peter Tind Larsen, Miguel Palacios, Hari Phatak and David Skovmand for helpful comments.
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Ammann, M., Verhofen, M. & Süss, S. Do implied volatilities predict stock returns?. J Asset Manag 10, 222–234 (2009). https://doi.org/10.1057/jam.2009.14
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DOI: https://doi.org/10.1057/jam.2009.14