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Volatility smiles when information is lagged in prices

Tipo
Artigos

Ano
01/11/2018

Linha de Pesquisa
Administração e Economia de Negócios

Autor(es)
Gianluca Marcato, Tumellano Sebehela, Carlos Heitor Campani

Orientador

https://doi.org/10.1016/j.najef.2018.03.004


The North American Journal of Economics and Finance, v. 46, pp. 151-165. Abstract: 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.

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