Implied Volatility Duration: A measure for the timing of uncertainty resolution

Arbeitspapier

We introduce Implied Volatility Duration (IVD) as a new measure for the timing of uncertainty resolution, with a high IVD corresponding to late resolution. Portfolio sorts on a large cross-section of stocks indicate that investors demand on average more than five percent return per year as a compensation for a late resolution of uncertainty. In a general equilibrium model, we show that 'late' stocks can only have higher expected returns than 'early' stocks, if the investor exhibits a preference for early resolution of uncertainty. Our empirical analysis thus provides a purely market-based assessment of the timing preferences of the marginal investor.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SAFE Working Paper ; No. 265

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Financial Markets and the Macroeconomy ; Criteria for Decision-Making under Risk and Uncertainty
• Subject: preference for early resolution of uncertainty ; implied volatility ; cross-sectionof expected stock returns ; asset pricing

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schlag, Christian ; Thimme, Julian ; Weber, Rüdiger
• Event: Veröffentlichung
• (who): Leibniz Institute for Financial Research SAFE
• (where): Frankfurt a. M.
• (when): 2020

Further information

• DOI: doi:10.2139/ssrn.2881993
• Handle: http://hdl.handle.net/10419/213567
• URN: urn:nbn:de:hebis:30:3-528964