Yes / We find a negative relation between firm-level political risk and future delta-hedged equity option returns. A quasi-natural experiment based on Brexit corroborates this finding since after the
referendum there is a decrease in the option returns of the positive-Brexit exposure firms. The
predictability is driven by the jump risk component of political uncertainty, is more pronounced
in periods of high intermediary constraints and is stronger among high-demand pressure options
but weaker among politically active firms. Finally, consistent with a risk-based explanation, investors of options on politically risky firms get compensated with high returns when major unexpected political shocks take place.
| Identifer | oai:union.ndltd.org:BRADFORD/oai:bradscholars.brad.ac.uk:10454/19599 |
| Date | 20 September 2023 |
| Creators | Ho, Thang, Kagkadis, A., Wang, G. |
| Publisher | Oxford University Press |
| Source Sets | Bradford Scholars |
| Language | English |
| Detected Language | English |
| Type | Article, Accepted manuscript |
| Rights | © The Author 2023. Published by Oxford University Press on behalf of The Society for Financial Studies. This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial License (http://creativecommons.org/licenses/by-nc/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited. For commercial re-use, please contact journals.permissions@oup.com, CC-BY-NC |
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