Are Equity Option Returns Abnormal? IPCA Says No

Amit Goyal and Alessio Saretto

No 2214, Working Papers from Federal Reserve Bank of Dallas

Abstract: We show that much of the profitability in equity option return strategies, which try to capture option mispricing by taking exposure to underlying volatility, can be explained by an IPCA model. The alpha reduction, relative to competing static factor models, is between 50% and 75% depending on the computing model and the type of option position.

Keywords: option returns; IPCA; Alpha (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 (search for similar items in EconPapers)
Pages: 57
Date: 2022-08-26
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (1)

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DOI: 10.24149/wp2214

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