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Volatility smiles when information is lagged in prices

Marcato, G. ORCID:, Sebehela, T. and Campani, C. H. (2018) Volatility smiles when information is lagged in prices. North American Journal of Economics and Finance, 46. pp. 151-165. ISSN 1062-9408

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To link to this item DOI: 10.1016/j.najef.2018.03.004


This study explores volatility smiles when stock market information is lagged, specifically in the REIT industry. A usual requirement is that REITs can only disseminate information relating to their property valuations once per year; therefore, this leads to the lagging effect. Within the context of exchange options (i.e. mergers), it seems that no study has researched on this theme. This article uses the Black & Scholes model to calculate implied volatilities and their corresponding implied options to illustrate arbitrage opportunities when exchange options emerge. The results illustrate that implied volatilities are different from non-implied volatilities. Further, arbitrage is still higher among REITs as opposed to other capital market instruments. Finally, just like other capital market instruments, REIT acquisitions generate alpha.

Item Type:Article
Divisions:Henley Business School > Real Estate and Planning
Henley Business School > ICMA Centre
ID Code:76287
Uncontrolled Keywords:Exchange option, lagged and volatility smile


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