We propose that differences between overnight and daytime returns are the result of return extrapolation. After high daytime returns, morning order imbalances are high in the first 15 minutes of regular trading the next day, which is consistent with higher overnight returns. The effect is...

The stylized fact that volatility is not priced in individual equity options does not withstand scrutiny. We show, first, that the average return of heavily traded deep out-of-the-money call options on stocks is -116 basis points per day. Second, Fama- MacBeth estimates of the volatility risk...

This paper develops a new method to calculate hedged returns on model-free “equity VIX” option portfolios. Our returns are highly correlated with realized variance minus implied variance. Compared to CBOE’s VIX formula, our formulas are more accurate for both simulated and actual prices,...