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- Publisher
- Oxford University Press
- Copyright
- © The Author 2013. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oup.com
- ISSN
- 2045-9920
- eISSN
- 2045-9939
- DOI
- 10.1093/rapstu/rat004
- Publisher site
- See Article on Publisher Site
Abstract
We construct a panel of S&P 500 Index call and put option portfolios, daily adjusted to maintain targeted maturity, moneyness, and unit market beta, and test multi-factor pricing models. The standard linear factor methodology is applicable because the monthly portfolio returns have low skewness and are close to normal. We hypothesize that any one of crisis-related factors incorporating price jumps, volatility jumps, and liquidity (along with the market) explains the cross-sectional variation in returns. Our hypothesis is not rejected, even when the factor premia are constrained to equal the corresponding premia in the cross-section of equities. The alphas of short-maturity out-of-the-money puts become economically and statistically insignificant. (JEL G11, G13, G14)
Journal
The Review of Asset Pricing Studies – Oxford University Press
Published: Dec 25, 2013