Implied Volatility and the Cross Section of Stock Returns in the UK

Sunil Poshakwale, Pankaj Chandorkar, Vineet Agarwal

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)
5 Downloads (Pure)

Abstract

The paper examines the relationship and the cross-sectional asset pricing implications of risk arising from the innovations in the short and the long-term implied market volatility on excess returns of the FTSE100 and the FTSE250 indices and the 25 value-weighted Fama-French style portfolios in the UK. Findings suggest that after controlling for valuation, macroeconomic, leading economic and business cycle indicators, returns exhibit a strong negative relationship with the innovations in both the short and the long-term implied market volatility. The cross-sectional regression provides new evidence that changes in both short and long-term implied market volatility are significant asset pricing factors with negative prices of risk, which suggests that (i) investors care about ex-ante volatility and (ii) they are willing to pay for insurance for future uncertainty.
Original languageEnglish
Pages (from-to)271-286
JournalResearch in International Business and Finance
Volume48
Early online date14 Jan 2019
DOIs
Publication statusPublished - 1 Apr 2019

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