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Aggregate Volatility and Market Jump Risk : An Option-Based Explanation to Size and Value Premia

Author

Listed:
  • Eser Arisoy

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

It is well-documented that stock returns have different sensitivities to changes in aggregate volatility, however less is known about their sensitivity to market jump risk. By using S&P 500 crash-neutral at-the-money straddle and out-of-money put returns as proxies for aggregate volatility and market jump risk, I document significant differences between volatility and jump loadings of value vs. growth, and small vs. big portfolios. In particular, small (big) and value (growth) portfolios exhibit negative (positive) and significant volatility and jump betas. I also provide further evidence that both volatility and jump risk factors are priced and negative.

Suggested Citation

  • Eser Arisoy, 2014. "Aggregate Volatility and Market Jump Risk : An Option-Based Explanation to Size and Value Premia," Post-Print hal-01634549, HAL.
    • Handle: RePEc:hal:journl:hal-01634549
    DOI: 10.1002/fut.21589
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    Cited by:

    1. Galvani, Valentina, 2021. "The value premium during flights," Finance Research Letters, Elsevier, vol. 39(C).
    2. Chen, Chin-Ho, 2019. "Downside jump risk and the levels of futures-cash basis," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    3. Baller, Stefanie & Entrop, Oliver & McKenzie, Michael & Wilkens, Marco, 2016. "Market makers’ optimal price-setting policy for exchange-traded certificates," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 206-226.

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