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Implied Volatility Duration: A Measure for the Timing of Uncertainty Resolution

Authors :
Julian Thimme
Rüdiger Weber
Christian Schlag
Source :
Journal of Financial Economics. 140(1):127-144
Publication Year :
2021
Publisher :
Elsevier, 2021.

Abstract

We introduce implied volatility duration (IVD) as a new measure for the timing of uncertainty resolution, with a high IVD corresponding to late resolution. Portfolio sorts on a large cross-section of stocks indicate that investors demand, on average, more than 5% return per year as a compensation for a late resolution of uncertainty. In a general equilibrium model, we show that “late” stocks can only have higher expected returns than “early” stocks if the investor exhibits a preference for early resolution of uncertainty. Our empirical analysis thus provides a purely market-based assessment of the timing preferences of the marginal investor.

Details

Language :
English
ISSN :
0304405X
Volume :
140
Issue :
1
Database :
OpenAIRE
Journal :
Journal of Financial Economics
Accession number :
edsair.doi.dedup.....7daf1d08a3b1772f4c5dc333af2a7c29