Option-Implied Skewness and the Value of Financial Intermediaries

For a sample of financial intermediaries from the US, we show that corporate value is strongly related to (risk-neutral) option-implied skewness. In contrast, historical (return-based) skewness does not play a role for valuation. We illustrate that the option-implied skewess predicts better observed (ex-post) stock returns than the historical skewness. As under rational expectations observed (ex-post) returns should on average reflect ex-ante expected return, options are helpful to get insights about company valuation. These results are confirmed also as we analyze separately "Globally Systemic Important Financial Institutions'' (GSIFIs). Our findings for the financial sector are in line with the previous literature that shows the importance of skewness pricing inside non-financial corporations. The data reveal that the correlation between corporate value and option-implied skewness is tighter for the segment of financial technology firms, which is an interesting finding for the most recent research on fin-tech valuation