A0564
Title: Cross-sectional analysis of stock returns using option-implied tail risk
Authors: Masato Ubukata - Meiji Gakuin University (Japan) [presenting]
Abstract: The purpose is to investigate whether an option-implied market tail risk has substantial predictive power for the cross-section of average returns in the Japanese stock market. A time-varying option-implied jump variation is calculated using the Nikkei 225 options data from January 2006 to March 2024. Monthly predictive regressions are run for each stock. Stocks are then sorted into several portfolios based on their estimated tail risk loadings. Average monthly value- and equal-weighted portfolio returns are tracked, and the hypothesis that tail risk helps explain differences in expected returns across stocks is tested.
