Implied Volatility and the Cross Section of Stock Returns in the UK

Poshakwale, Sunil, Chandorkar, Pankaj and Agarwal, Vineet (2019) Implied Volatility and the Cross Section of Stock Returns in the UK. Research in International Business and Finance, 48. pp. 271-286. ISSN 0275-5319

[img] Text (Full text)
Poshakwale et al - Implied Volatility and the Cross Section of Stock Returns in the UK AAM.pdf - Accepted Version
Restricted to Repository staff only until 14 July 2020.
Available under License Creative Commons Attribution Non-commercial No Derivatives 4.0.

Download (747kB)
Official URL: https://doi.org/10.1016/j.ribaf.2019.01.006

Abstract

The paper examines the relationship and the cross-sectional asset pricing implications of risk arising from the innovations in the short and the long-term implied market volatility on excess returns of the FTSE100 and the FTSE250 indices and the 25 value-weighted Fama-French style portfolios in the UK. Findings suggest that after controlling for valuation, macroeconomic, leading economic and business cycle indicators, returns exhibit a strong negative relationship with the innovations in both the short and the long-term implied market volatility. The cross-sectional regression provides new evidence that changes in both short and long-term implied market volatility are significant asset pricing factors with negative prices of risk, which suggests that (i) investors care about ex-ante volatility and (ii) they are willing to pay for insurance for future uncertainty.

Item Type: Article
Uncontrolled Keywords: VFTSE, Excess Returns, Asset Pricing, Business Cycle, ICAPM, implied volatility
Subjects: N300 Finance
Department: Faculties > Business and Law > Newcastle Business School
Depositing User: Paul Burns
Date Deposited: 09 Jan 2019 12:57
Last Modified: 19 Nov 2019 09:04
URI: http://nrl.northumbria.ac.uk/id/eprint/37521

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics


Policies: NRL Policies | NRL University Deposit Policy | NRL Deposit Licence