International capital asset pricing: Evidence from options

Mo, Henry; Wu, Liuren

doi:10.1016/j.jempfin.2006.12.002

Cited by 27 publications

(17 citation statements)

References 59 publications

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“…2 Our paper is also related to recent theoretical advances. Mo and Wu (2007) develop an international CAPM model which has features similar to our model. Elkamhi and Ornthanalai (2010) develop a bivariate discrete-time GARCH model to extract the market jump risk premia implicit in individual equity option prices.…”

Section: Introductionmentioning

confidence: 99%

The Factor Structure in Equity Options

Christoffersen

Fournier

Jacobs

2017

The Review of Financial Studies

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Principal component analysis of equity options on Dow-Jones …rms reveals a strong factor structure. The …rst principal component explains 77% of the variation in the equity volatility level, 77% of the variation in the equity option skew, and 60% of the implied volatility term structure across equities. Furthermore, the …rst principal component has a 92% correlation with S&P500 index option volatility, a 64% correlation with the index option skew, and a 80% correlation with the index option term structure. We develop an equity option valuation model that captures this factor structure. The model allows for stochastic volatility in the market return and also in the idiosyncratic part of …rm returns. The model predicts that …rms with higher betas have higher implied volatilities, and steeper moneyness and term structure slopes. We provide a tractable approach for estimating the model on a large set of index and equity option data on which the model provides a good …t. The equity option data support the cross-sectional implications of the estimated model. JEL Classi…cation: G10; G12; G13.

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Section: Introductionmentioning

confidence: 99%

The Factor Structure in Equity Options

Christoffersen

Fournier

Jacobs

2017

The Review of Financial Studies

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“…Das and Uppal (2004) note that downside jumps in international equity markets tend to occur at the same time. Mo and Wu (2007) also report that large downside moves are more likely to be global rather than country-specific movements. As a consequence of this, investors cannot avoid drops in portfolio value by diversifying internationally.…”

Section: The Markets For Call and Put Optionsmentioning

confidence: 99%

Joint Modeling of Call and Put Implied Volatility

Ahoniemi¹,

Lanne

2008

SSRN Journal

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This paper exploits the fact that implied volatilities calculated from identical call and put options have often been empirically found to differ, although they should be equal in theory. We propose a new bivariate mixture multiplicative error model and show that it is a good fit to Nikkei 225 index call and put option implied volatility (IV). A good model fit requires two mixture components in the model, allowing for different mean equations and error distributions for calmer and more volatile days. Forecast evaluation indicates that in addition to jointly modeling the time series of call and put IV, cross effects should be added to the model: put-side implied volatility helps forecast call-side IV, and vice versa. Impulse response functions show that the IV derived from put options recovers faster from shocks, and the effect of shocks lasts for up to six weeks. JEL Classification: C32, C53, G13

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“…A research by Coë n (2001) developed an interesting international CAPM, in which human capital were included. Further, Mo and Wu (2007) developed an international CAPM, under which each equity index return was decomposed into two orthogonal jump-diffusion components. They suggested these two components were a global component and a country-specific component.…”

Section: Literature Reviewmentioning

confidence: 99%

An Exploration of the Time-varying Beta of the International Capital Asset Pricing Model: The Case of the Japanese and the Other Asia-Pacific Stock Markets

Tsuji¹

2017

AFR

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This study clarifies the state of dynamic evolution of the international CAPM betas for Asia Pacific (excluding Japan) and Japanese stock returns: first, both for Asia Pacific and Japanese stock markets, the time-invariant international CAPM beta values are not high. Second, over the period from July 2, 1990 to May 30, 2016, for Asia Pacific stock markets, the time-varying international CAPM betas gradually increase; while for the Japanese market, the time-varying international CAPM betas gradually decrease. We also find that the international time-varying CAPM betas for Japan are recently lower than those for Asia Pacific markets, thus, in the global equity investments, Japanese equities are more useful to obtain the diversification effects than the other Asia Pacific equities.

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International capital asset pricing: Evidence from options

Cited by 27 publications

References 59 publications

The Factor Structure in Equity Options

The Factor Structure in Equity Options

Joint Modeling of Call and Put Implied Volatility

An Exploration of the Time-varying Beta of the International Capital Asset Pricing Model: The Case of the Japanese and the Other Asia-Pacific Stock Markets

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