Firm Fundamentals and Variance Risk Premiums

Lyle, Matthew R.; Naughton, James P.

doi:10.2139/ssrn.2696183

Cited by 6 publications

(3 citation statements)

References 72 publications

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“…A few studies that cover the LCE model have been presented in the literature. Lyle and Naughton (2015) expanded the authors' results. They showed that stock risk premiums are rationally associated with firm characteristics and increases in both book-to-market and return on equity (ROE).…”

Section: Risk Aversion Modelsmentioning

confidence: 90%

Expected Return, Firm Fundamentals, and Aggregate Systemic Risk: An Analysis for the Brazilian Market using an Accounting-Based Valuation Model

Mikosz

Oliveira

Roma

2020

RBGN

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Purpose-This paper examines the ability of Lyle, Callen, and Elliott's (2013) valuation accounting model in estimating expected returns (cost of capital) in the Brazilian capital market. Design/methodology/approach-To test the model's ability to generate expected returns (cost of capital), as well as to predict prices, Fama-Macbeth's (1973) monthly cross-sectional regressions were used. Sensitivity to different risk factors, particularly to the whole (systematic) economy risk, was also tested to forecast returns using a two-stage approach. Findings-The results showed that even under different conditions, the accounting model evaluated has unsatisfactory performance with emerging country data, during the analysis period. Moreover, the sensitivity of return to the risk factors employed was not a determinant for the forecasts. However, the findings showed consistency for price forecasting, and the evidence was consistent with the work applied in the American market. Originality/value-For the Brazilian case, the model failed to capture the dynamics of asset returns, showing that the capital market under analysis has its own characteristics and requires a methodology that considers this.

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Section: Risk Aversion Modelsmentioning

confidence: 90%

Expected Return, Firm Fundamentals, and Aggregate Systemic Risk: An Analysis for the Brazilian Market using an Accounting-Based Valuation Model

Mikosz

Oliveira

Roma

2020

RBGN

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“…Empirical studies confirm the existence of a positive VRP in equity options (Han and Zhou, 2012; Barth and So, 2014; Lyle and Naughton, 2016). However, research attempting to delineate the causes of the VRP is inconclusive.…”

Section: Prior Literature and Hypothesis Developmentmentioning

confidence: 95%

Past managerial guidance and returns to variance trading around earnings announcements

Neururer

2019

Accounting & Finance

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I investigate the relationship between past managerial guidance and realized variance risk premiums (VRPs)i.e., the difference between implied and realized variancein equity options around earnings announcements. I find that implied variances are lower before earnings announcements but VRPs are higher when firms provide guidance. I also find higher option-implied jump risk when firms issue surprising guidance. Further tests suggest a portion of the higher VRPs are due to changes in perceived higher-order risks, but traders also underreact to the precision of information in short-term guidance. These results are attenuated for firms with a better information environment.

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“…Although Beneish et al (2001) is interested in improving return prediction models by identifying extreme price movers, the ability to identify highly volatile firms is by itself particularly relevant for the option market, as that market directly prices volatility. Several recent accounting studies have also explored the link between accounting information and options markets with an emphasis on implied volatilities (e.g., Barth & So, 2014; Dubinsky & Johannes, 2006; Hong, Schoenberger, & Subramanyam, 2015; Lyle & Naughton, 2016; Rogers et al, 2009). But none of these articles examines the link between accounting signals and future option returns, especially after controlling for market-based signals used in the finance literature.…”

Section: Prior Literature and Hypothesis Developmentmentioning

confidence: 99%

Fundamental Analysis and Option Returns

Goodman

Neamtiu

Zhang

2017

Journal of Accounting, Auditing & Finance

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This article investigates whether fundamental volatility information is appropriately priced in the options market. We find that fundamental signals exhibit incremental predictive power with respect to future option returns above and beyond what is captured by implied and historical stock volatility, suggesting that the options market does not fully incorporate fundamental information into option prices. Transaction costs substantially reduce the overall profitability of hedge strategies that exploit only the fundamental volatility information in these accounting signals; however, fundamental signals provide a useful complement for strategies based on historical volatility.

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Firm Fundamentals and Variance Risk Premiums

Cited by 6 publications

References 72 publications

Expected Return, Firm Fundamentals, and Aggregate Systemic Risk: An Analysis for the Brazilian Market using an Accounting-Based Valuation Model

Expected Return, Firm Fundamentals, and Aggregate Systemic Risk: An Analysis for the Brazilian Market using an Accounting-Based Valuation Model

Past managerial guidance and returns to variance trading around earnings announcements

Fundamental Analysis and Option Returns

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