NBER Working Papers and Publications
|October 2013||The Joint Cross Section of Stocks and Options|
with Byeong-Je An, Andrew Ang, Nusret Cakici: w19590
Stocks with large increases in call implied volatilities over the previous month tend to have high future returns while stocks with large increases in put implied volatilities over the previous month tend to have low future returns. Sorting stocks ranked into decile portfolios by past call implied volatilities produces spreads in average returns of approximately 1% per month, and the return differences persist up to six months. The cross section of stock returns also predicts option-implied volatilities, with stocks with high past returns tending to have call and put option contracts which exhibit increases in implied volatility over the next month, but with decreasing realized volatility. These predictability patterns are consistent with rational models of informed trading.
Published: Byeong-Je An & Andrew Ang & Turan G. Bali & Nusret Cakici, 2014. "The Joint Cross Section of Stocks and Options," Journal of Finance, American Finance Association, vol. 69(5), pages 2279-2337, October. citation courtesy of
|September 2013||Hybrid Tail Risk and Expected Stock Returns: When Does the Tail Wag the Dog?|
with Nusret Cakici, Robert F. Whitelaw: w19460
We introduce a new, hybrid measure of stock return tail covariance risk, motivated by the under-diversified portfolio holdings of individual investors, and investigate its cross-sectional predictive power. Our key innovation is that this covariance is measured across the left tail states of the individual stock return distribution, not across those of the market return as in standard systematic risk measures. We document a positive and significant relation between hybrid tail covariance risk (H-TCR) and expected stock returns, with an annualized premium of 9%, in contrast to the insignificant or negative results for purely stock-specific or systematic tail risk measures.
Published: “Hybrid Tail Risk and Expected Stock Returns: When Does the Tail Wag the Dog?” (with Turan Bali and Nusret Cakici), 2014, Review of Asset Pricing Studies, Vol. 4, No. 2, pp. 206-246.
|March 2009||Maxing Out: Stocks as Lotteries and the Cross-Section of Expected Returns|
with Nusret Cakici, Robert F. Whitelaw: w14804
Motivated by existing evidence of a preference among investors for assets with lottery-like payoffs and that many investors are poorly diversified, we investigate the significance of extreme positive returns in the cross-sectional pricing of stocks. Portfolio-level analyses and firm-level cross-sectional regressions indicate a negative and significant relation between the maximum daily return over the past one month (MAX) and expected stock returns. Average raw and risk-adjusted return differences between stocks in the lowest and highest MAX deciles exceed 1% per month. These results are robust to controls for size, book-to-market, momentum, short-term reversals, liquidity, and skewness. Of particular interest, including MAX reverses the puzzling negative relation between returns and idios...
Published: Journal of Financial Economics Volume 99, Issue 2, February 2011, Pages 427–446 Cover image Maxing out: Stocks as lotteries and the cross-section of expected returns ☆ Turan G. Balia, 1, E-mail the corresponding author, Nusret Cakicib, 2, E-mail the corresponding author, Robert F. Whitelawc, d,
|March 2005||Asymmetric Crime Cycles|
with H. Naci Mocan: w11210
Recent theoretical models based on dynamic human capital formation, or social influence, suggest an inverse relationship between criminal activity and economic opportunity and between criminal activity and deterrence, but predict an asymmetric response of crime. In this paper we use three different data sets and three different empirical methodologies to document this previously-unnoticed regularity. Using nonparametric methods we show that the behavior of property crime is asymmetric over time, where increases are sharper but decreases are gradual. Using aggregate time-series U.S. data as well as data from New York City we demonstrate that property crime reacts more (less) strongly to increases (decreases) in the unemployment rate, to decreases (increases) in per capita real GDP and to de...
Published: H. Naci Mocan & Turan G. Bali, 2010. "Asymmetric Crime Cycles," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 899-911, 01. citation courtesy of