Arbeitspapier
The contribution of frictions to expected returns
We derive a model-free option-based formula to estimate the contribution of market frictions to expected returns (CFER) within an asset pricing setting. We estimate CFER for the U.S. optionable stocks. We document that CFER is sizable, it predicts stock returns and it subsumes the effect of frictions on expected returns as expected theoretically. The sizable alpha of a long-short portfolio formed on CFER is consistent with the size of market frictions and it is not due to model mis-specification. Moreover, we show that various option-implied measures proxy CFER, thus providing a theoretical explanation for their ability to predict stock returns.
- Language
-
Englisch
- Bibliographic citation
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Series: Working Paper ; No. 874
- Classification
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Wirtschaft
Estimation: General
Asset Pricing; Trading Volume; Bond Interest Rates
Contingent Pricing; Futures Pricing; option pricing
- Subject
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Alpha
Asset pricing
Implied volatility spread
Limits of arbitrage
Market frictions
Return predictability
- Event
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Geistige Schöpfung
- (who)
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Hirakiy, Kazuhiro
Skiadopoulos, George
- Event
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Veröffentlichung
- (who)
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Queen Mary University of London, School of Economics and Finance
- (where)
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London
- (when)
-
2018
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Hirakiy, Kazuhiro
- Skiadopoulos, George
- Queen Mary University of London, School of Economics and Finance
Time of origin
- 2018
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