Short-Term Market Risks Implied by Weekly Options

Research output: Contribution to journalArticle

23 Scopus citations

Abstract

We study short-maturity (“weekly”) S&P 500 index options, which provide a direct way to analyze volatility and jump risks. Unlike longer-dated options, they are largely insensitive to the risk of intertemporal shifts in the economic environment. Adopting a novel seminonparametric approach, we uncover variation in the negative jump tail risk, which is not spanned by market volatility and helps predict future equity returns. As such, our approach allows for easy identification of periods of heightened concerns about negative tail events that are not always “signaled” by the level of market volatility and elude standard asset pricing models.

Original languageEnglish (US)
Pages (from-to)1335-1386
Number of pages52
JournalJournal of Finance
Volume72
Issue number3
DOIs
StatePublished - Jun 2017

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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