Investor sentiment,variance risk premium and delta-hedged gains |
| |
Authors: | Yankun Chen Jin E Zhang |
| |
Institution: | 1. School of International Trade and Economics, University of International Business and Economics, Beijing, China;2. Department of Accountancy and Finance, University of Otago, Dunedin, New Zealand |
| |
Abstract: | Delta-hedged gains are supposed to be negative and represent a volatility risk premium. Using a sample of Standard & Poor 500 index options from 2006 to 2009, this study documents two anomalies that cannot be explained by the volatility risk premium. First, delta-hedged gains are more negative for out-of-money options than for at-the-money options. Second, delta-hedged gains are significantly positive during financial crisis period. We propose a behavioural explanation in which both option prices and stock prices are affected by investor’s sentiment, but pessimistic sentiment has a greater impact on stock market than option market. This asymmetric response to pessimistic mood in turn affects the relative expensiveness of option prices. |
| |
Keywords: | Investor sentiment variance risk premium delta-hedged gains |
|
|