Volatility smiles when information is lagged in prices

This study explores volatility smiles when stock market information is lagged, specifically in the REIT industry. A usual requirement is that REITs can only disseminate information relating to their property valuations once per year; therefore, this leads to the lagging effect. Within the context of...

Full description

Saved in:
Bibliographic Details
Published in:The North American journal of economics and finance 2018-11, Vol.46, p.151-165
Main Authors: Marcato, Gianluca, Sebehela, Tumellano, Campani, Carlos Heitor
Format: Article
Language:English
Subjects:
Exchange option
Lagged
Volatility smile
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This study explores volatility smiles when stock market information is lagged, specifically in the REIT industry. A usual requirement is that REITs can only disseminate information relating to their property valuations once per year; therefore, this leads to the lagging effect. Within the context of exchange options (i.e. mergers), it seems that no study has researched on this theme. This article uses the Black & Scholes model to calculate implied volatilities and their corresponding implied options to illustrate arbitrage opportunities when exchange options emerge. The results illustrate that implied volatilities are different from non-implied volatilities. Further, arbitrage is still higher among REITs as opposed to other capital market instruments. Finally, just like other capital market instruments, REIT acquisitions generate alpha.
ISSN:1062-9408
1879-0860
DOI:10.1016/j.najef.2018.03.004