This dissertation examines the information content of implied volatility with regard to future asset returns and future earnings announcements. By definition, implied volatility is the market's best guess of the future volatility over the term of the option. Thus, the objective of my first essay is to investigate whether expected idiosyncratic risk (i.e. firm-specific risk as opposed to market risk), as measured from implied volatility, is related to future returns. I find a strong positive link between implied idiosyncratic volatility and future returns. It is also clear that historical realized idiosyncratic volatility is unimportant in the presence of implied idiosyncratic volatility. The robust results of my first essay motivate the idea that implied volatility might also contain information about future earnings. Therefore, in my second essay I examine whether information about earnings announcement surprises is imbedded in option prices (via implied volatility and the implied volatility skew) prior to the announcement. I find some limited support for this idea. In particular, the results of my second essay suggest that investors might profit by buying put options in low volatility skew firms 3, 10, 20, or even 30 days before the earnings announcement. / A Dissertation submitted to the Department of Finance in partial fulfillment of the
requirements for the degree of Doctor of Philosophy. / Degree Awarded: Summer Semester, 2008. / Date of Defense: April 3, 2008. / Implied Volatility, Idiosyncratic Volatility, Portfolio Returns / Includes bibliographical references. / David Peterson, Professor Directing Dissertation; Thomas W. Zuehlke, Outside Committee Member; James Doran, Committee Member; Gary Benesh, Committee Member; Bruce Billings, Committee Member.
| Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_168912 |
| Contributors | Diavatopoulos, Constantine (authoraut), Peterson, David (professor directing dissertation), Zuehlke, Thomas W. (outside committee member), Doran, James (committee member), Benesh, Gary (committee member), Billings, Bruce (committee member), Department of Finance (degree granting department), Florida State University (degree granting institution) |
| Publisher | Florida State University |
| Source Sets | Florida State University |
| Language | English, English |
| Detected Language | English |
| Type | Text, text |
| Format | 1 online resource, computer, application/pdf |
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