The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
AFA members can log in to view full-text articles below.
View past issues
Search the Journal of Finance:
Search results: 1.
Very Noisy Option Prices and Inference Regarding the Volatility Risk Premium
Published: 07/17/2024 | DOI: 10.1111/jofi.13365
JEFFERSON DUARTE, CHRISTOPHER S. JONES, JUNBO L. WANG
The stylized fact that volatility is not priced in individual equity options does not withstand scrutiny. First, we show that the average return of heavily traded deep out‐of‐the‐money call options on stocks is −116 basis points per day. Second, Fama‐MacBeth estimates of the volatility risk premium in stock options are similar to those in S&P 500 Index call options. Third, the mean return of heavily traded delta‐hedged at‐the‐money calls (puts) is −23 (−30) basis points. Fourth, the variance risk premium in stock options is negative. Our analysis highlights the importance of microstructure biases and robustness in empirical work with options.