The 2015 International Symposium on summer financial research institute ten
Subject: A Bound on Expected Stock Returns
Speaker: Dr. Xiaoxiao Tang of University of Washington's Olin School of business
Time: July 28, 2015 (Tuesday) at 1:30-3:00 PM
Location: Institute of Finance Conference Room 202 (Guanghua campus north door near the basketball court)
Organizer: Department of scientific research, Financial Research Institute
Xiaoxiao Tang is currently a PhD candidate in the University of Washington Olin School of business.
We present a sufficient condition under which the prices of options with different strike prices written on a particular stock can be used to calculate a lower bound on the expected stock returns. The sufficient condition imposes a restriction on a combination of the stock's systematic and idiosyncratic risk. The lower bound is forward-looking and can be calculated on a daily (and even intra-daily basis stocks with liquid) for option trading. We estimate the lower bound empirically for constituents of the S&P and study its cross-sectional 500 index properties. We find that the bound increases with beta and book-to-market and decreases with size and momentum. The bound also provides a noisy signal on future realized stock returns.
Contact: ye Dan, Zhang Bohuai