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Title: Option-implied equity risk and the cross section of stock returns
Authors: Chen, TF
Chung, SL
Tsai, WC
Issue Date: 2016
Publisher: CFA Institute
Source: Financial analysts journal, 2016, v. 72, no. 6, p. 42-55 How to cite?
Journal: Financial analysts journal 
Abstract: In our study, we take advantage of the forward-looking nature of information in option prices to estimate systematic equity risk while controlling for the effect of idiosyncratic skewness. Empirical results show a significantly positive relationship between the option-implied beta estimate and subsequent stock returns. A long-short portfolio based on our beta estimate earned an average monthly return of 0.96%. We also find that the option-implied beta predicts future realized betas and that the risk premium on the option-implied beta is positively associated with future market returns and contains information about future macroeconomic variables.
ISSN: 0015-198X
EISSN: 1938-3312
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