Is overreaction an explanation for the value effect? A study using implied volatility from option prices
AbstractMany empirical studies document the value effect. One explanation is that investors overreact to growth aspects for growth stocks. We apply Stein's (1989) method to investigate whether the degree of overreaction differs between value and growth stocks using the implied volatility from option prices. A finding of overreaction for either value stocks or growth stocks would lend support to overreaction as an explanation for the value effect. Empirical results here indicate a stronger degree of overreaction for growth stocks.
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Bibliographic InfoPaper provided by University of New Orleans, Department of Economics and Finance in its series Working Papers with number 2003-11.
Length: 29 pages
Date of creation: 2003
Date of revision:
Implied volatility; Option prices; Value effect;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
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