Title : On the Ex-Ante Cross-Sectional Relation Between Risk and Return Using Option-Implied Information
This paper examines cross-sectional relations between ex ante expected returns and ex ante betas. As a proxy for ex ante expected returns, we use the implied mean returns obtained from the riskadjusted option pricing model suggested in this paper. We find that ex ante expected returns have a positive and significant cross-sectional relation with ex ante betas in all investment horizons considered. This significant relation is maintained regardless of the inclusion of firm size, bookto-market, and momentum. The cross-sectional regression estimate of ex ante market risk premium has a statistical significance as well as an economic significance in that it contains significant forward-looking information on future macroeconomic conditions. Further, we find that ex ante betas have significant explanatory power for realized ex post returns. A significant relation between ex ante forward returns and forward betas is also found. Other interesting findings are that, in an ex ante world, firm size is still negatively significant, but book-to-market is negatively significant, which is the opposite of the ex post results; also, investors’ ex ante expectation on returns is not predicated on past stock performance.
JEL classification: G12, G13, G14
Keywords: CAPM, Ex ante expected return, Implied mean return, Implied beta, Risk-adjusted option pricing
학회소식
학회소식
[2010년 제 4차] On the Ex-Ante Cross-Sectional Relation Between Ris
작성자 : 관리자
조회수 : 958
게시일 :
2010-12-09