We explore whether the market variance risk premium (VRP) can be predicted. First, we propose a novel approach to measure VRP which distinguishes the investment horizon from the variance swap's maturity. We extract VRP from actual rather than synthetic S&P 500 variance swap quotes, thus avoiding...

We test one of the main predictions of the financial flexibility paradigm that expectations about future firm-specific shocks affect the firm's leverage. We extract the expectations of small and large future shocks from the market prices of equity options. We find that expectations for future...

We study the real-time characteristics and drivers of jumps in option prices. To this end, we employ high frequency data from the 24-hour E-mini S&P 500 options market. We find that option prices do not jump simultaneously across strikes and maturities and are uncorrelated with jumps in the...

We propose a new predictor of real economic activity (REA), namely the representative investor's implied relative risk aversion (IRRA) extracted from S&P 500 option prices. IRRA exploits the forward-looking information in option prices. It increases as risk averse investors enter the market,...

We explore whether the market variance risk premium (VRP) can be predicted. First, we propose a novel approach to measure VRP which distinguishes the investment horizon from the variance swap's maturity. We extract VRP from actual rather than synthetic S&P 500 variance swap quotes, thus avoiding...