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Is volatility risk priced in the securities market? Evidence from S&P 500 index options


  • Yakup Eser Arisoy
  • Aslihan Salih
  • Levent Akdeniz


The authors examine whether volatility risk is a priced risk factor in securities returns. Zero‐beta at‐the‐money straddle returns of the S&P 500 index are used to measure volatility risk. It is demonstrated that volatility risk captures time variation in the stochastic discount factor. The results suggest that straddle returns are important conditioning variables in asset pricing, and investors use straddle returns when forming their expectations about securities returns. One interesting finding is that different classes of firms react differently to volatility risk. For example, small firms and value firms have negative and significant volatility coefficients, whereas big firms and growth firms have positive and significant volatility coefficients during high‐volatility periods, indicating that investors see these latter firms as hedges against volatile states of the economy. Overall, these findings have important implications for portfolio formation, risk management, and hedging strategies. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:617–642, 2007

Suggested Citation

  • Yakup Eser Arisoy & Aslihan Salih & Levent Akdeniz, 2007. "Is volatility risk priced in the securities market? Evidence from S&P 500 index options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 27(7), pages 617-642, July.
  • Handle: RePEc:wly:jfutmk:v:27:y:2007:i:7:p:617-642

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    Cited by:

    1. Lai, Ya-Wen, 2017. "Macroeconomic factors and index option returns," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 452-477.
    2. Stanley Peterburgsky, 2021. "Is aggregate volatility a priced risk factor?," International Review of Finance, International Review of Finance Ltd., vol. 21(3), pages 843-864, September.
    3. Arisoy, Yakup Eser, 2010. "Volatility risk and the value premium: Evidence from the French stock market," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 975-983, May.
    4. Peterburgsky, Stanley, 2021. "Aggregate volatility risk: International evidence," Global Finance Journal, Elsevier, vol. 47(C).

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