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Expected Stock Returns and Option-Implied Rate of Return

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DOI: 10.4236/jmf.2012.24030    5,333 Downloads   9,676 Views  

ABSTRACT

This paper examines the predictability of implied required rate of return (ROI) of individual stock in the cross-section of stock returns. The required rate of return of each stock is implied using its corresponding stock options and used in estimating the fundamental value of stock. The study finds that stocks with low price to fundamental value have higher future returns. The inferred ROIOI

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S. Ze-To, "Expected Stock Returns and Option-Implied Rate of Return," Journal of Mathematical Finance, Vol. 2 No. 4, 2012, pp. 169-279. doi: 10.4236/jmf.2012.24030.

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