Accessibility navigation


Predicting the equity market with option-implied variables

Hollstein, F., Prokopczuk, M., Tharann, B. and Wese Simen, C. (2019) Predicting the equity market with option-implied variables. European Journal of Finance, 25 (10). pp. 937-965. ISSN 1466-4364

[img]
Preview
Text - Accepted Version
· Please see our End User Agreement before downloading.

594kB

It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing.

To link to this item DOI: 10.1080/1351847X.2018.1556176

Abstract/Summary

We comprehensively analyze the predictive power of several option-implied variables for monthly S&P 500 excess returns and realized variance. The correlation risk premium (CRP) and the variance risk premium (VRP) emerge as strong predictors of both excess returns and realized variance. This is true both in- and out-of-sample. Our results also reveal that statistical evidence of predictability does not necessarily lead to economic gains. However, a timing strategy based on the CRP leads to utility gains of more than 5.03% per annum. Forecast combinations provide stable forecasts for both excess returns and realized variance, and add economic value.

Item Type:Article
Refereed:Yes
Divisions:Henley Business School > ICMA Centre
ID Code:81483
Publisher:Taylor and Francis

Downloads

Downloads per month over past year

University Staff: Request a correction | Centaur Editors: Update this record

Page navigation