Douglas Cumming, Lutz Johanning, Umut Ordo, Denis Schweizer

Ambiguity in Option Markets - Evidence from SEOs

  • Article
  • pp. 67-92
  • DOI: 10.12831/87060
  • Abstract

Keywords: Ambiguity; Option-Implied Information; Information Tangibility; Seasoned Equity Offerings (SEOs); Straddle; Volatility Trading Strategy.

Seasoned equity offerings (SEOs) typically provide investors with information, or signals, that are stock price relevant. This information, however, is generally intangible, meaning market participants have incomplete knowledge about its quality. Investors thus tend to regard it as ambiguous. To calculate a related ambiguity premium, we use straddle returns to explore the difference between option-implied and realised volatility following SEO events. After controlling for common risk factors, we find significantly positive alphas that can proxy for the ambiguity premium. In line with previous research, we find that the estimated ambiguity premium is positively correlated with firms' fundamental data intangibility, as proxied for by the skewness of stock returns.

Prima pagina articolo
Post your comment:
In order to submit your comment, you have to register, filling out the fields below. If you are already registered, please login.
* Indicates a required field
Insert first name and last name. Example: John Smith
This address is used to authenticate your account should you ever encounter problems or forget your password.
Type the characters you see in the picture
In qualità di Interessato, dichiaro di aver preso visione dell'informativa privacy redatta ai sensi dell'art. 13 del D.Lgs. 196/2003 e dell'art. 7 del D.Lgs. 196/2003, e acconsento al trattamento dei miei dati personali per le finalità indicate:
The use of this site is under a Legal notice, that I have completely read and with which I full agree [http://www.jfmi.mulino.it/en/license].
According to the art. 1341 c.c., authorized user explicitly agrees to the terms of Legal notice to the points: 6, 7, 8 and 9.