TY - JOUR
T1 - The implied volatility smirk in SPY options
AU - Guo, Wei
AU - Gehricke, Sebastian A.
AU - Ruan, Xinfeng
AU - Zhang, Jin E.
N1 - Publisher Copyright:
© 2021 Informa UK Limited, trading as Taylor & Francis Group.
PY - 2021
Y1 - 2021
N2 - We provide a comprehensive study of the implied volatility (IV) smirk in the SPDR S&P 500 Exchange-Traded Fund (SPY ETF) option market. In general, the IV curves are downward sloping with little curvature, exhibiting an almost straight line. However, the shape of the IV curves becomes more curved during the global financial crisis (GFC) period, indicating that the commonly accepted IV smirk shape is driven by the GFC. In addition, based on in-sample, out-of-sample tests and asset allocation analysis, we show that the first difference of the slope factor can predict the next month’s SPY excess returns.
AB - We provide a comprehensive study of the implied volatility (IV) smirk in the SPDR S&P 500 Exchange-Traded Fund (SPY ETF) option market. In general, the IV curves are downward sloping with little curvature, exhibiting an almost straight line. However, the shape of the IV curves becomes more curved during the global financial crisis (GFC) period, indicating that the commonly accepted IV smirk shape is driven by the GFC. In addition, based on in-sample, out-of-sample tests and asset allocation analysis, we show that the first difference of the slope factor can predict the next month’s SPY excess returns.
KW - IV smirks
KW - Implied volatility (IV)
KW - SPY options
KW - global financial crisis (GFC)
KW - prediction
UR - http://www.scopus.com/inward/record.url?scp=85098726028&partnerID=8YFLogxK
U2 - 10.1080/00036846.2020.1866159
DO - 10.1080/00036846.2020.1866159
M3 - Article
AN - SCOPUS:85098726028
SN - 0003-6846
VL - 53
SP - 2671
EP - 2692
JO - Applied Economics
JF - Applied Economics
IS - 23
ER -