IDEAS home Printed from https://ideas.repec.org/a/eee/empfin/v88y2026ics0927539826000629.html

The cross-section of individual equity option returns

Author

Listed:
  • Shafaati, Mobina
  • Chance, Don M.
  • Brooks, Robert

Abstract

We study the cross-section of delta-hedged returns of individual equity options using 130 firm- and option-level characteristics. Applying LASSO with bootstrap-based post-selection inference, we identify a sparse and stable set of predictors while accounting for model selection uncertainty. The realized-implied volatility spread, idiosyncratic volatility, and turnover emerge as dominant determinants of expected returns. Sparse models deliver out-of-sample performance with predictive slopes close to one. These predictors operate through economic channels related to information asymmetry, earnings quality, limits to arbitrage, demand pressure, and risk. Our approach provides interpretable estimates of marginal effects and accounts for model selection uncertainty in post-selection inference.

Suggested Citation

  • Shafaati, Mobina & Chance, Don M. & Brooks, Robert, 2026. "The cross-section of individual equity option returns," Journal of Empirical Finance, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:empfin:v:88:y:2026:i:c:s0927539826000629
    DOI: 10.1016/j.jempfin.2026.101748
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927539826000629
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jempfin.2026.101748?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:empfin:v:88:y:2026:i:c:s0927539826000629. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jempfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.