Stock options as lotteries

• Autores: Brian H. Boyer, Keith Vorkink
• Localización: The Journal of finance, ISSN 0022-1082, Vol. 69, Nº 4, 2014, págs. 1485-1527
• Idioma: inglés
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• Resumen

  • We investigate the relationship between ex ante total skewness and holding returns on individual equity options. Recent theoretical developments predict a negative relationship between total skewness and average returns, in contrast to the traditional view that only coskewness is priced. We find, consistent with recent theory, that total skewness exhibits a strong negative relationship with average option returns. Differences in average returns for option portfolios sorted on ex ante skewness range from 10% to 50% per week, even after controlling for risk. Our findings suggest that these large premiums compensate intermediaries for bearing unhedgeable risk when accommodating investor demand for lottery-like options.