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Korean Journal of Financial Studies 2015;44(4):615-636.
Published online September 30, 2015.
Does the Difference of Implied Volatility over Historical Volatility Affect ELW Returns? A Korean Evidence
Jangkoo Kang, Jongho Kang, Soonhee Lee
내재변동성과 역사적 변동성 차이가 국내 ELW 수익률에 미치는 영향 분석
강장구, 강종호, 이순희
Abstract
This paper investigates whether the difference of implied (IV) over historical volatilities (HV) of the underlying assets predicts the future returns of equity-linked warrants (ELWs). Our findings are as follows: First, the future delta-hedged return of an ELW is lower, the lower the difference of volatilities (HV-IV). Second, in the cross-section of ELW portfolios, there is a persistent excess return earned from the highest (top 20%) over the lowest (bottom 20%) volatility groups. Third, this excess return is not well explained by existing systematic risk factors. Lastly, ELW returns are better explained by the idiosyncratic variables of ELWs like liquidity characteristics and buying pressure.
Key Words: Volatility Difference,Implied Volatility,Historical Volatility,ELW,Cross-Sectional Study,횡단면 분석,역사적 변동성,변동성 차이,내재변동성
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