Journal of Mathematical Finance

Volume 2, Issue 4 (November 2012)

ISSN Print: 2162-2434   ISSN Online: 2162-2442

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Expected Stock Returns and Option-Implied Rate of Return

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DOI: 10.4236/jmf.2012.24030    7,046 Downloads   11,838 Views  


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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