Attention: Implied Volatility Spreads and Stock Returns

Document Type

Article

Publication Date

10-1-2020

Abstract

Using a new and direct measure of investor attention generated from the SEC’s EDGAR log files, we revisit the stock return predictability of call-put implied volatility spread through the lens of investor attention. We find that as investor attention heightens, the volatility spread return predictability becomes more pronounced, providing favorable evidence for the informed trading hypothesis as opposed to the mispricing hypothesis. More importantly, we document the construction and profitability of spread-and-high-attention portfolios. A portfolio that goes long on stocks with the highest investor attention and the highest volatility spread and short on stocks with the highest attention and the lowest volatility spread generates a Fama-French 5-factor monthly alpha of 2.43%.

Identifier

85075458445 (Scopus)

Publication Title

Journal of Behavioral Finance

External Full Text Location

https://doi.org/10.1080/15427560.2019.1692846

e-ISSN

15427579

ISSN

15427560

First Page

385

Last Page

398

Issue

4

Volume

21

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