Starjournal Quotation Schlag, Christian, Thimme, Julian, Weber, Rüdiger. 2021. Implied Volatility Duration: A Measure for the Timing of Uncertainty Resolution. Journal of Financial Economics. 140 (1), 127-144.


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Abstract

We introduce implied volatility duration (IVD) as a new measure for the timing of uncertainty resolution, with a high IVD corresponding to late resolution. Portfolio sorts on a large cross-section of stocks indicate that investors demand, on average, more than 5% return per year as a compensation for a late resolution of uncertainty. In a general equilibrium model, we show that "late" stocks can only have higher expected returns than "early" stocks if the investor exhibits a preference for early resolution of uncertainty. Our empirical analysis thus provides a purely market-based assessment of the timing preferences of the marginal investor.

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  • asset pricing
  • cross-section of expected stock returns
  • implied volatility
  • Preference for early resolution of uncertainty

Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Journal of Financial Economics
Citation Index SSCI
WU Journalrating 2009 A+
Starjournal Y
Language English
Title Implied Volatility Duration: A Measure for the Timing of Uncertainty Resolution
Volume 140
Number 1
Year 2021
Page from 127
Page to 144
Reviewed? Y
URL https://www.sciencedirect.com/science/article/pii/S0304405X20302877
DOI https://doi.org/10.1016/j.jfineco.2020.11.003
Open Access Y
Open Access Link https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2881993
JEL D81, E44, G12

Associations

People
Weber, Rüdiger (Details)
External
Schlag, Christian (Goethe University Frankfurt am Main, Germany)
Thimme, Julian (Karlsruhe Institute of Technology, Germany)
Organization
Institute for Finance, Banking and Insurance IN (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
5361 Financial management (Details)
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