Heterogeneous Beliefs And Risk Neutral Skewness

conglomerate Beliefs and Risk Neutral Skewness Geoffrey C. Friesen* College of Business Administration, 237 CBA University of northeastward Lincoln, NE 68588-0490 gfriesen2@unl.edu (402) 472-2334 Yi Zhang College of Business Prairie View A&M University P.O. shock 519, MS 2310 Prairie View, TX 77446 yizhang@pvamu.edu (936) 261-9219 Thomas S. Zorn College of Business Administration, 231 CBA University of Nebraska Lincoln, NE 68588-0490 tzorn1@unl.edu (402) 472-6049 * agree author electronic model available at: http://ssrn.com/ diddle=1930365 Heterogeneous Beliefs and Risk Neutral Skewness Abstract This film tests whether investor whimsey differences reach the cross-sectional variation of risk-neutral lopsidedness, using info on firm-level stock alternatives traded on the CBOE from 2003 to 2006. Using well cognize proxies for heterogeneous beliefs, we find that stocks with greater belief differences have more(prenominal) forbid skews, even after(preno minal) controlling for systematic risk and other firm-level variables cognize to affect skewness. This result also goes beyond the net expense gouge hypothesis suggested by Bollen and Whaley (2004). Factor analysis identifies potential variables link to systematic risk and belief differences.

The belief mover explains more variation in the risk-neutral density than the risk-based factor. Our results suggest that belief differences may be one of the unexplained firmspecific components affecting skewness draw in Dennis and Mayhew (2002). *We thank John Geppert, Richard DeFusco, Manferd Peterson, Kathy Farrell, Donna Dudney, Emre Unlu, Tisha Friesen and seminar participants at the U niversity of Nebraska, the 2008 FMA yearboo! k Meeting, the justice and the editor for helpful comments and suggestions. 1 Electronic copy available at: http://ssrn.com/abstract=1930365 I. Introduction Under no-arbitrage assumptions, the equipment casualty of an option equals the expected payoff under a risk-neutral probability distribution, discounted at...If you sine qua non to get a full essay, order it on our website: OrderEssay.net

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