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Article: Risk-Neutral Skewness, Informed Trading, and the Cross Section of Stock Returns
Title | Risk-Neutral Skewness, Informed Trading, and the Cross Section of Stock Returns |
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Authors | |
Issue Date | 2021 |
Publisher | Cambridge 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? |
Abstract | In 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 Identifier | http://hdl.handle.net/10722/284759 |
ISSN | 2023 Impact Factor: 3.7 2023 SCImago Journal Rankings: 3.980 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Chordia, T | - |
dc.contributor.author | Lin, TC | - |
dc.contributor.author | Xiang, V | - |
dc.date.accessioned | 2020-08-07T09:02:15Z | - |
dc.date.available | 2020-08-07T09:02:15Z | - |
dc.date.issued | 2021 | - |
dc.identifier.citation | Journal of Financial and Quantitative Analysis, 2021, v. 56 n. 5, p. 1713-1737 | - |
dc.identifier.issn | 0022-1090 | - |
dc.identifier.uri | http://hdl.handle.net/10722/284759 | - |
dc.description.abstract | In 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.language | eng | - |
dc.publisher | Cambridge University Press. The Journal's web site is located at http://journals.cambridge.org/action/displayJournal?jid=jfq | - |
dc.relation.ispartof | Journal of Financial and Quantitative Analysis | - |
dc.rights | This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License. | - |
dc.rights | This 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.title | Risk-Neutral Skewness, Informed Trading, and the Cross Section of Stock Returns | - |
dc.type | Article | - |
dc.identifier.email | Lin, TC: chunlin@hku.hk | - |
dc.identifier.authority | Lin, TC=rp01077 | - |
dc.description.nature | postprint | - |
dc.identifier.doi | 10.1017/S0022109020000551 | - |
dc.identifier.scopus | eid_2-s2.0-85092325245 | - |
dc.identifier.hkuros | 311620 | - |
dc.identifier.volume | 56 | - |
dc.identifier.issue | 5 | - |
dc.identifier.spage | 1713 | - |
dc.identifier.epage | 1737 | - |
dc.identifier.isi | WOS:000681648400009 | - |
dc.publisher.place | United Kingdom | - |
dc.identifier.issnl | 0022-1090 | - |