Risk-Neutral Skewness, Informed Trading, and the Cross Section of Stock Returns

Chordia, Tarun, Lin, TC and Xiang, Yiding 2021, Risk-Neutral Skewness, Informed Trading, and the Cross Section of Stock Returns, Journal of Financial and Quantitative Analysis, vol. 56, no. 5, pp. 1713-1737, doi: 10.1017/S0022109020000551.

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Title Risk-Neutral Skewness, Informed Trading, and the Cross Section of Stock Returns
Author(s) Chordia, Tarun
Lin, TC
Xiang, YidingORCID iD for Xiang, Yiding orcid.org/0000-0002-9682-0614
Journal name Journal of Financial and Quantitative Analysis
Volume number 56
Issue number 5
Start page 1713
End page 1737
Total pages 25
Publisher Cambridge University Press
Place of publication Cambridge, Eng.
Publication date 2021-08
ISSN 0022-1090
1756-6916
Keyword(s) ANOMALIES
Business & Economics
Business, Finance
Economics
EQUILIBRIUM
INFORMATION
LOTTERIES
MARKET
OPTION VOLUME
PREFERENCE
PRICES
RESTRICTIONS
SHORT SALES
Social Sciences
Risk-Neutral Skewness
Options Markets
Informed Trading
Earnings Announcements
Non-scheduled News Release
Summary AbstractIn this article, we use volatility surface data from options contracts to document a strong, robust, and positive cross-sectional relation between risk-neutral skewness (RNS) and subsequent stock returns. The differential return between high- and low-RNS stocks amounts to 0.17% per week. Preannouncement RNS is positively related to earnings announcement returns, and the positive RNS–return relation is more pronounced for other nonscheduled news releases. This suggests that it is informed trading that drives the positive relation between RNS and subsequent stock returns. We also find that RNS contains incremental information beyond trading signals captured by option-implied volatility and volume.
Language eng
DOI 10.1017/S0022109020000551
Field of Research 1501 Accounting, Auditing and Accountability
1502 Banking, Finance and Investment
HERDC Research category C1 Refereed article in a scholarly journal
Persistent URL http://hdl.handle.net/10536/DRO/DU:30137818

Document type: Journal Article
Collections: Faculty of Business and Law
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