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actually the cost. This confusion has to dissipate with arbitrage at the market where the short selling is institutionalized or … arbitrage, which recurs to dissipate all the differences; i.e. the expected returns must be converged to the single rate and we … can ignore the beta as a component of the equity cost. The arbitrage results in valuation differences in the end, such as …
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This paper develops a new approach to explain why risk factors constructed from option returns are priced in the stock market. We decompose an option- based factor into three main components and identify the one responsible for the beta-return relationship. Applying this method to the bear risk...
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