Option-implied skewness: Insights from ITM-options

Mohrschladt H, Schneider J


Zusammenfassung
While the standard to calculate model-free option-implied skewness (MFIS) relies on out-of-the-money (OTM) options, we examine the empirical and economic implications of using in-the-money (ITM) options. We find that the positive short-term return predictability of OTM-based MFIS significantly reverses if ITM-options are used instead. While this reversal is inconsistent with an explanation based on skewness preferences, MFIS apparently reflects information that is not timely incorporated in stock prices due to market frictions. Based on these insights, we introduce ΔMFIS as a new measure of additional option-embedded information that significantly predicts subsequent returns beyond a large range of other option-based return predictors.

Schlüsselwörter
In-the-money-options; Option-implied skewness; Return predictability; Market frictions



Publikationstyp
Forschungsartikel (Zeitschrift)

Begutachtet
Ja

Publikationsstatus
Veröffentlicht

Jahr
2021

Fachzeitschrift
Journal of Economic Dynamics and Control

Band
131

Seiten
104227

Sprache
Englisch

ISSN
0165-1889

DOI