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Systematic Volatility Risk and Its Cross-sectional Determinants
Chakrabarti Prasenjit
Published in Elsevier
2021
Volume: 3802330

Abstract

We empirically examine whether investors demand a systemic component of Volatility Risk (VRP-beta) using the stock options traded on National Stock Exchange, India. We document robust evidence on the presence of VRP-beta, which survives even after accounting for the traditional Fama-French factors. We also explore possible determinants of VRP-beta. Further, we find VRP-beta is positively related to the hedging demand of tail risk and negatively associated with the options market liquidity, but unrelated to the size and volatility of the stock. Our results are robust to alternate specifications of realized volatility calculated at different sampling frequencies.