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Risk neutral variances to compute expected returns using data from S&P BSE 100 firms—a replication study

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Abstract

The purpose of the paper is to test the new approach suggested by Martin and Wagner (2019, p 1887–1929) for calculating the expected return on stocks. The risk-neutral variance of stock, the risk-neutral variance of the market, and the volume-weighted average of risk-neutral variance are used to compute the expected return. Options prices are used to compute the risk-neutral variance for the sample period and sample firms. The data from April 2015–March 2020 for S&P BSE 100 are collected, and regression models are used to test the newly developed approach to compute expected returns. The results using data for Indian firms are qualitatively the same. The study states that the approach to compute expected returns based on risk-neutral variance is more practical and has implications for finance professionals and academicians.

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Data availability

The link for the repository containing data is given below https://osf.io/4hgcv/https://doi.org/10.17605/OSF.IO/4HGCV

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  1. DoGM, School of Business, University of Petroleum and Energy Studies, Dehradun, Uttrakhand, 248007, India

    Hardeep Singh Mundi

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  1. Hardeep Singh Mundi
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Mundi, H.S. Risk neutral variances to compute expected returns using data from S&P BSE 100 firms—a replication study. Manag Rev Q 73, 215–230 (2023). https://doi.org/10.1007/s11301-021-00236-7

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  • DOI: https://doi.org/10.1007/s11301-021-00236-7

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