The use of option implied volatility in asset pricing tests.

摘要

Chapter one explores the ability of option implied volatility to determine the cost-of-capital for equity for individual firms. Such a relationship could be justified in several ways. For example, models of imperfect or non-competitive economies often find that investors are concerned about individual firm volatility more than systemic risk. It also could be that measures of volatility are highly correlated with the true but unknown risk factors in an economy. Finally, stock volatility is thought by many to be an important bankruptcy determinant. The interesting findings of the paper are that implied volatility is the best return predictor from among the many examined but it does no better than measures of historical volatility. Further, the paper finds that the ability of previous default risk measures in predicting stock returns is likely to be due to its correlation with stock volatility.;Chapter two examines the question of whether implied volatility of at-the-money options is indeed an unbiased predictor of future stock volatility or whether it is also distorted by investor risk aversion. In this case, investors are averse to random changes in volatility from day-to-day. These 'stochastic' changes in volatility are shown to be correlated with known market-wide variables and, because stochastic volatility cannot be hedged, investors would be expected to adjust option prices and, therefore, option implied volatilities to reflect the extra expected return required to accept the extra risk. The main finding is that, consistent with the Capital Asset Pricing Model for stock returns, positive (negative) correlation of changes in stock variance with the market return lead to implied volatility being lower (higher) than subsequent realized returns.