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Article: Risk-Neutral Skewness, Informed Trading, and the Cross Section of Stock Returns

TitleRisk-Neutral Skewness, Informed Trading, and the Cross Section of Stock Returns
Authors
Chordia, TLin, TCXiang, V
Issue Date2021
PublisherCambridge University Press. The Journal's web site is located at http://journals.cambridge.org/action/displayJournal?jid=jfq
Citation
Journal of Financial and Quantitative Analysis, 2021, v. 56 n. 5, p. 1713-1737 How to Cite?
DOI: http://dx.doi.org/10.1017/S0022109020000551
AbstractIn this article, we use volatility surface data from options contracts to document a strong, robust, and positive cross-sectional relation between risk-neutral skewness (RNS) and subsequent stock returns. The differential return between high- and low-RNS stocks amounts to 0.17% per week. Preannouncement RNS is positively related to earnings announcement returns, and the positive RNS–return relation is more pronounced for other nonscheduled news releases. This suggests that it is informed trading that drives the positive relation between RNS and subsequent stock returns. We also find that RNS contains incremental information beyond trading signals captured by option-implied volatility and volume.
Persistent Identifierhttp://hdl.handle.net/10722/284759
ISSN
0022-1090
2021 Impact Factor: 4.337
2020 SCImago Journal Rankings: 4.657
ISI Accession Number ID
WOS:000681648400009

 

DC FieldValueLanguage
dc.contributor.authorChordia, T-
dc.contributor.authorLin, TC-
dc.contributor.authorXiang, V-
dc.date.accessioned2020-08-07T09:02:15Z-
dc.date.available2020-08-07T09:02:15Z-
dc.date.issued2021-
dc.identifier.citationJournal of Financial and Quantitative Analysis, 2021, v. 56 n. 5, p. 1713-1737-
dc.identifier.issn0022-1090-
dc.identifier.urihttp://hdl.handle.net/10722/284759-
dc.description.abstractIn this article, we use volatility surface data from options contracts to document a strong, robust, and positive cross-sectional relation between risk-neutral skewness (RNS) and subsequent stock returns. The differential return between high- and low-RNS stocks amounts to 0.17% per week. Preannouncement RNS is positively related to earnings announcement returns, and the positive RNS–return relation is more pronounced for other nonscheduled news releases. This suggests that it is informed trading that drives the positive relation between RNS and subsequent stock returns. We also find that RNS contains incremental information beyond trading signals captured by option-implied volatility and volume.-
dc.languageeng-
dc.publisherCambridge University Press. The Journal's web site is located at http://journals.cambridge.org/action/displayJournal?jid=jfq-
dc.relation.ispartofJournal of Financial and Quantitative Analysis-
dc.rightsThis work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.-
dc.rightsThis article has been published in a revised form in Journal of Financial and Quantitative Analysis. https://doi.org/10.1017/S0022109020000551. No commercial re-distribution or re-use allowed. Derivative works cannot be distributed. © Michael G. Foster School of Business Administration, University of Washington 2020.-
dc.titleRisk-Neutral Skewness, Informed Trading, and the Cross Section of Stock Returns-
dc.typeArticle-
dc.identifier.emailLin, TC: chunlin@hku.hk-
dc.identifier.authorityLin, TC=rp01077-
dc.description.naturepostprint-
dc.identifier.doi10.1017/S0022109020000551-
dc.identifier.scopuseid_2-s2.0-85092325245-
dc.identifier.hkuros311620-
dc.identifier.volume56-
dc.identifier.issue5-
dc.identifier.spage1713-
dc.identifier.epage1737-
dc.identifier.isiWOS:000681648400009-
dc.publisher.placeUnited Kingdom-
dc.identifier.issnl0022-1090-

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