Do implied volatilities predict stock returns?
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- Ammann, M., Verhofen, M. & Süss, S. J Asset Manag (2009) 10: 222. doi:10.1057/jam.2009.14
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.