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Date of Award
Doctor of Philosophy (PhD)
I propose a forward-looking measure of the asymmetry in the variance of asset returns and introduce a way to estimate it from option prices. This measure is model free and it serves as a close approximation for the asset risk premium. I provide an empirically supported sufficient condition under which the risk-neutral variance asymmetry ranks stocks based on their expected returns. Empirically, I find strong cross-sectional correlation between this measure and future stock returns. Variance asymmetry managed portfolios yield economically large average returns and Sharpe ratios. Crash risk and standard asset pricing factors do not explain this abnormal performance. Furthermore, the term structure of this measure reflects future time variation in stock returns.
Chair and Committee
Guofu Zhou, Asaf Manela, Ngoc-Khanh Tran, John Nachbar,
Tang, Xiaoxiao, "Essays in Asset Pricing" (2018). Arts & Sciences Electronic Theses and Dissertations. 1591.
Available for download on Sunday, May 15, 2118