We propose a methodology for estimating option-implied forward-looking variances and covariances of assets and portfolios, which may not possess actively-traded options. Our approach relies on the observation that any factor structure for stock returns naturally induces a factor structure for...

In this article, the authors find that a typical application of volatility-timing strategies to the stock market suffers from a look-ahead bias, despite existing evidence on successes of the strategies at the stock level. After correcting the bias, the strategy becomes very difficult to...

We ask whether option prices contain information on the likelihood and direction of jumps in the underlying stock prices. Applying the partial least squares (PLS) approach to the entire surface of the implied volatilities (IV), we show that option prices can successfully predict downward jumps...

Using overnight volatility as the proxy for overnight information, this paper models future Chinese stock market realized range-based volatility (RRV) within a class of heterogeneous autoregressive models augmented by this proxy. We confirm the important role of overnight information in...