Implied volatility sentiment: a tale of two tails

References

• Ait-Sahalia, Y. and Lo, A., Nonparametric risk management and implied risk aversion. J. Econom., 2000, 94, 90–51.
   Web of Science ®Google Scholar
• Amin, K., Coval, J. and Seyhun, H., Index option prices and stock market momentum. J. Bus., 2004, 77, 835–874.
   Google Scholar
• Ang, A., Chen, J. and Xing, Y., Risk, return and dividends. Rev. Financ. Stud., 2006, 19, 1191–1239.
   Web of Science ®Google Scholar
• Ang, A. and Liu, J., Risk, return and dividends. J. Financ. Econ., 2007, 85, 1–38.
   Web of Science ®Google Scholar
• Baker, M. and Wurgler, J., Investor sentiment in the stock market. J.Econ. Perspect., 2007, 21, 129–151.
   Web of Science ®Google Scholar
• Bakshi, G., Kapadia, N. and Madan, D., Stock returns characteristics, skew laws, and the differential pricing of individual equity options. Rev. Financ. Stud., 2003, 16, 101–143.
   Web of Science ®Google Scholar
• Barberis, N., The psychology of tail events: Progress and challenges. Am. Econ. Rev., 2013, 103, 611–616.
   Web of Science ®Google Scholar
• Barberis, N. and Huang, M., Stocks as lotteries: The implication of probability weighting for security prices. Am. Econ. Rev., 2008, 98, 2066–2100.
   Web of Science ®Google Scholar
• Bates, D., The crash of '87: Was it expected? The evidence from options markets. J. Finance, 1991, 46, 1009–1044.
   Web of Science ®Google Scholar
• Bates, D., Empirical option pricing: A retrospection. J. Econom., 2003, 116, 387–404.
   Web of Science ®Google Scholar
• Beber, A., Brandt, M. and Luisi, M., Distilling the macroeconomic news flow. J. Financ. Econ., 2015, 117, 489–507.
   Web of Science ®Google Scholar
• Bliss, R. and Panigirtzoglou, N., Option-implied risk aversion estimates. J. Finance, 2004, 59, 407–446.
   Web of Science ®Google Scholar
• Bollen, N. and Whaley, R., Does net buying pressure affect the shape of implied volatility function? J. Finance, 2004, 59, 711–753.
   Web of Science ®Google Scholar
• Bollerslev, T., Tauchen, G. and Zhou, H., Expected stock returns and variance risk premia. Rev. Financ. Stud., 2009, 22, 4463–4492.
   Web of Science ®Google Scholar
• Boyer, B. and Vorkink, K., Stock options as lotteries. J. Finance, 2014, 69, 1485–1527.
   Web of Science ®Google Scholar
• Brunnermeier, M. and Pedersen, L., Market liquidity and funding liquidity. Rev. Financ. Stud., 2009, 22, 2201–2238.
   Web of Science ®Google Scholar
• Buss, A., Schoenleber, L. and Vilkov, G., Expected stock returns and the correlation risk premium. CEPR Discussion Paper No. DP12760, pp. 1–61, 2017.
   Google Scholar
• Campbell, J. and Cochrane, J., By force of habit: A consumption-based explanation of aggregate stock market behavior. J. Polit. Econ., 1999, 107, 205–251.
   Web of Science ®Google Scholar
• Campbell, J. and Thompson, S., Predicting the equity premium out of sample: Can anything beat the historical average?. Rev. Financ. Stud., 2008, 21, 1509–1531.
   Web of Science ®Google Scholar
• Carhart, M., On persistence in mutual fund performance. J. Finance, 1997, 52, 57–82.
   Web of Science ®Google Scholar
• Chan, L., Chen, H.L. and Lakonishok, J., On mutual fund investment styles. Rev. Financ. Stud., 2002, 15, 1407–1437.
   Web of Science ®Google Scholar
• Cornell, B., The pricing of volatility and skewness: A new interpretation. J. Investing, 2009, 18, 27–30.
   Google Scholar
• De Long, J., Shleifer, A., Summers, L. and Waldmann, R., Noise trader risk in financial markets. J. Polit. Econ., 1990, 98, 703–738.
   Web of Science ®Google Scholar
• Dierkes, M., Option-implied risk attitude under rank-dependent utility. Unpublished working paper. University of Münster, Münster, Germany, 2009.
   Google Scholar
• Doran, J., Peterson, D. and Tarrant, B., Is there information in the volatility skew? J. Future Markets, 2007, 27, 921–959.
   Web of Science ®Google Scholar
• Driessen, J., Maenhout, P. and Vilkov, G., Option-implied correlations and the price of correlation risk. SSRN working paper no. 2166829, pp. 1–46, 2013.
   Google Scholar
• Fama, E. and French, K., The cross-section of expected stock returns. J. Finance, 1992, 47, 427–465.
   Web of Science ®Google Scholar
• Fama, E. and French, K., A five-factor asset pricing model. J. Financ. Econ., 2015, 116, 1–22.
   Web of Science ®Google Scholar
• Fama, E. and French, K., Dissecting anomalies with a five-factor model. Rev. Financ. Stud., 2016, 29, 69–103.
   Web of Science ®Google Scholar
• Félix, L., Kräussl, R. and Stork, P., Single stock call options as lottery tickets. J. Behav. Financ., 2019, 20, 385–407.
   Google Scholar
• Figlewski, S., Estimating the implied risk neutral density for the us market portfolio. In Volatility and Time Series Econometrics: Essays in Honor of Robert F. Engle, edited by Tim Bollerslev, Jeffrey Russell, and Mark Watson, 2010 (Oxford University Press: Oxford).
   Google Scholar
• Frazzini, A. and Pedersen, L., Betting against beta. J. Financ. Econ., 2014, 111, 1–25.
   Web of Science ®Google Scholar
• Frijns, B., Huynh, T., Tourani-Rad, A. and Westerholm, P., Institutional trading and asset pricing. J. Bank. Financ., 2018, 89, 59–77.
   Web of Science ®Google Scholar
• Garleanu, N., Pedersen, L.H. and Poteshman, A.M., Demand-based option pricing. Rev. Financ. Stud., 2009, 22, 4259–4299.
   Web of Science ®Google Scholar
• Han, B., Investor sentiment and option prices. Rev. Financ. Stud., 2008, 21, 387–414.
   Web of Science ®Google Scholar
• Hartmann, P., Straetmans, S. and de Vries, C., Asset market linkages in crisis periods. Rev. Econ. Stat., 2004, 86, 313–326.
   Web of Science ®Google Scholar
• Harvey, C. and Siddique, A., Conditional skewness in asset pricing tests. J. Finance, 2000, 55, 1263–1295.
   Web of Science ®Google Scholar
• Hastie, T., Tibshirani, R. and Friedman, J., The Elements of Statistical Learning: Data Mining, Inference, and Prediction, 2008 (Springer-Verlag: New York).
   Google Scholar
• Jackwerth, J. and Rubinstein, M., Recovering probability distributions from option prices. J. Finance, 1996, 51, 1611–1631.
   Web of Science ®Google Scholar
• Kent, D. and Moskowitz, T., Momentum crashes. J. Financ. Econ., 2016, 122, 221–247.
   Web of Science ®Google Scholar
• Kliger, D. and Levy, O., Theories of choice under risk: Insights from financial markets. J. Econ. Behav. Organ., 2009, 71, 330–346.
   Web of Science ®Google Scholar
• Krishnan, C.N.V., Petkova, R. and Ritchken, P., Correlation risk. J. Empir. Finance, 2009, 16, 353–367.
   Web of Science ®Google Scholar
• Lakonishok, J., Lee, I., Pearson, N. and Poteshman, A., Option market activity. Rev. Financ. Stud., 2007, 20, 813–857.
   Web of Science ®Google Scholar
• Lemmon, M. and Ni, S., The effects of investor sentiment on speculative trading and prices of stock and index options. SSRN working paper no. 1572427, 2011.
   Google Scholar
• Lemmon, M. and Portniaguina, E., Consumer confidence and asset prices: Some empirical evidence. Rev. Financ. Stud., 2006, 19, 1499–1529.
   Web of Science ®Google Scholar
• Li, J., Yao, Y., Chen, Y. and Lee, C., Option prices and stock market momentum: Evidence from China. Quant. Finance, 2018, 18, 1517–1529.
   Web of Science ®Google Scholar
• Longstaff, F., Option pricing and the martingale restriction. Rev. Financ. Stud., 1995, 8, 1091–1124.
   Web of Science ®Google Scholar
• Mahani, R. and Poteshman, A., Overreaction to stock market news and misevaluation of stock prices by unsophisticated investors: Evidence from the options market. J. Empir. Finance, 2008, 15, 635–655.
   Web of Science ®Google Scholar
• Mitton, T. and Vorkink, K., Equilibrium underdiversification and the preference for skewness. Rev. Financ. Stud., 2007, 20, 1255–1288.
   Web of Science ®Google Scholar
• Moskowitz, T., Ooi, Y.H. and Pedersen, L.H., Time series momentum. J. Financ. Econ., 2012, 104, 228–250.
   Web of Science ®Google Scholar
• Polkovnichenko, V. and Zhao, F., Probability weighting functions implied in option prices. J. Financ. Econ., 2013, 107, 580–609.
   Web of Science ®Google Scholar
• Pollet, J. and Wilson, M., Average correlation and stock market returns. J. Financ. Econ., 2008, 96, 364–380.
   Web of Science ®Google Scholar
• Prelec, D., The probability weighting function. Econometrica, 1998, 66, 497–527.
   Web of Science ®Google Scholar
• Rapach, D., Strauss, J. and Zhou, G., Out-of-sample equity premium prediction: Combination forecasts and links to the real economy. Rev. Financ. Stud., 2010, 23, 821–862.
   Web of Science ®Google Scholar
• Rosenberg, J. and Engle, R., Empirical pricing kernels. J. Financ. Econ., 2002, 64, 341–372.
   Web of Science ®Google Scholar
• Rubbaniy, G., Asmerom, R., Rizvi, S. and Naqvi, B., Do fear indices help predict stock returns?. Quant. Finance, 2014, 14, 831–847.
   Web of Science ®Google Scholar
• Tversky, A. and Kahneman, D., Advances in prospect theory: Cumulative representation of uncertainty. J. Risk. Uncertain., 1992, 5, 297–323.
   Web of Science ®Google Scholar
• Vilkov, G. and Xiao, Y., Option-implied information and predictability of extreme returns. SAFE (Goethe University Frankfurt) Working Paper Series 5, 1–36, 2013.
   Google Scholar
• Welch, I. and Goyal, A., A comprehensive look at the empirical performance of equity premium prediction. Rev. Financ. Stud., 2008, 21, 1455–1508.
   Web of Science ®Google Scholar
• Xing, Y., Zhang, X. and Zhao, R., What does the individual option volatility smirk tell us about future equity returns? J. Financ. Quant. Anal., 2010, 45, 641–662.
   Web of Science ®Google Scholar