Aggregate Volatility and Market Jump Risk: An Option-Based Explanation to Size and Value Premia

Aggregate Volatility and Market Jump Risk: An Option-Based Explanation to Size and Value Premia

It is well documented that stock returns have different sensitivities to changes in aggregate volatility, however less is known about their sensitivity to market jump risk. By using S&P 500 crash‐neutral at‐the‐money straddle and out‐of‐money put returns as proxies for aggregate volatility and m...

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Bibliographic Details
Published in:The journal of futures markets Vol. 34; no. 1; pp. 34 - 55
Main Author: Arisoy, Yakup Eser
Format: Journal Article
Language:English
Published: Hoboken Blackwell Publishing Ltd 01-01-2014
Wiley Periodicals Inc
Wiley
Subjects:
Aggregate analysis
Business administration
Futures
Humanities and Social Sciences
Market
Portfolio analysis
Rates of return
Risk factors
Securities markets
Studies
Value
Volatility
Options
Stock Returns
Stocks
Empirical Asset Pricing
Beta
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Summary:It is well documented that stock returns have different sensitivities to changes in aggregate volatility, however less is known about their sensitivity to market jump risk. By using S&P 500 crash‐neutral at‐the‐money straddle and out‐of‐money put returns as proxies for aggregate volatility and market jump risk, I document significant differences between volatility and jump loadings of value versus growth, and small versus big portfolios. In particular, small (big) and value (growth) portfolios exhibit negative (positive) and significant volatility and jump betas. I also provide further evidence that both volatility and jump risk factors are priced and negative. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 34:34–55, 2014
Bibliography:ark:/67375/WNG-0JK9NLLP-Z
ArticleID:FUT21589
istex:3B7502F5A8DB79F7B22C3C97965AFC71864AF6A4
I thank seminar participants at Cass Business School, Grenoble Ecole de Management, Lancaster University Management School and discussants at EFMA 2010 Meetings and FMA 2010 Meetings for valuable feedback. I am grateful to the Editor, Bob Webb, for a smooth editorial process and an anonymous reviewer for valuable comments and suggestions, which improved the study significantly. Usual disclaimer applies.
ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0270-7314
1096-9934
DOI:10.1002/fut.21589