@article{19654ca770f442868df798b0fc8ca110,
title = "Consumption risks in option returns",
abstract = "We offer evidence that exposures to consumption growth and consumption volatility are significantly priced in the cross-section of delta-hedged option returns. Consumption growth commands a positive risk premium, whereas consumption volatility commands a negative risk premium. Our results suggest that consumption risk exposures provide rational foundations for well-known relations between options moneyness or idiosyncratic underlying-stock volatility and the cross-section of delta-hedged option returns. Furthermore, those risk premiums can also price stocks. In a representative-agent economy with recursive preferences, our results suggest that investors prefer early resolution of uncertainty.",
keywords = "Consumption growth, Option returns, Recursive utility, Volatility risk",
author = "Shuwen Yang and Kevin Aretz and Hening Liu and Yuzhao Zhang",
note = "Funding Information: The funder to acknowledge is China Scholarship Council, and the grant ID is 201708060485. Funding Information: The funder to acknowledge is China Scholarship Council, and the grant ID is 201708060485. ☆ We thank Rossen Valkanov (the editor), an anonymous associate editor, an anonymous referee, Michael Brennan, Sungjun Cho, Amit Goyal, Kai Li and seminar participants at Shanghai University of Finance and Economics, the University of Nottingham Ningbo China, the 2018 Frontiers of Factor Investing Conference (Lancaster), the 2018 China Meeting of the Econometric Society (Shanghai), the 2018 Lingnan Macro Workshop on Financial Risks and Macroprudencial Policy (Guangzhou), the 2018 Guanghua International Symposium on Finance (Beijing), the 2018 Econometric Conference on Big Data and AI in Honor of Ronald Gallant (Beijing), the 2019 International Accounting and Finance Doctoral Symposium (Milano), the 2019 European Meeting of the Econometric Society (Manchester), and the 2019 China Finance Review International Conference (Shanghai) for helpful comments and suggestions. The views expressed in this paper are those of the authors and do not necessarily reflect those of AllianceBernstein. Publisher Copyright: {\textcopyright} 2022 Elsevier B.V.",
year = "2022",
month = dec,
doi = "10.1016/j.jempfin.2022.10.001",
language = "English (US)",
volume = "69",
pages = "285--302",
journal = "Journal of Empirical Finance",
issn = "0927-5398",
publisher = "Elsevier",
}