Browsing by Subject "Recession"

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    Option-based variables and future stock returns in normal times and recessions
    (Elsevier, 2024-10) Açıkalın, Özgür Şafak; Önder, Zeynep
    We examine the prediction of future returns of optionable stocks trading in the US exchanges by several option-based variables for the period between 1996 and 2015. It is found that option-based variables are significant factors in estimating future stock returns in normal periods and during recessions. The spread between weighted averages of implied volatilities calculated with all call and put options of underlying stocks is found to have the highest effect on future stock returns. Although the mean squared errors of the option models are significantly higher during recessions than the expansion periods, the model with option-based variables outperforms the market model and the Fama-French Three Factor Model in both recessions and the whole sample period. The findings suggest that option-based models incorporate information about extreme events more than the traditional models.