TY - JOUR
T1 - Volatility-of-volatility and the cross-section of option returns
AU - Ruan, Xinfeng
N1 - Publisher Copyright:
© 2019 Elsevier B.V.
PY - 2020/3
Y1 - 2020/3
N2 - This paper presents a robust new finding of a significant negative relation between equity option returns and the volatility-of-volatility (VOV). After controlling for numerous existing option and stock characteristics, the VOV effect remains significantly negative. It also survives many robustness checks. A conceptual model provided reveals the pricing mechanism behind the VOV effect. The high-low return spread on option portfolios sorted on VOV cannot be explained by standard risk factors, and survives double sorting using a variety of control variables.
AB - This paper presents a robust new finding of a significant negative relation between equity option returns and the volatility-of-volatility (VOV). After controlling for numerous existing option and stock characteristics, the VOV effect remains significantly negative. It also survives many robustness checks. A conceptual model provided reveals the pricing mechanism behind the VOV effect. The high-low return spread on option portfolios sorted on VOV cannot be explained by standard risk factors, and survives double sorting using a variety of control variables.
KW - Cross-section
KW - Option returns
KW - Volatility-of-volatility
UR - http://www.scopus.com/inward/record.url?scp=85063542872&partnerID=8YFLogxK
U2 - 10.1016/j.finmar.2019.03.002
DO - 10.1016/j.finmar.2019.03.002
M3 - Article
AN - SCOPUS:85063542872
SN - 1386-4181
VL - 48
JO - Journal of Financial Markets
JF - Journal of Financial Markets
M1 - 100492
ER -