Research

The cross-strike geometry of the implied-volatility smile predicts 30-minute equity option returns. Smiles that are more sharply curved or show larger cross-strike deviations are followed by higher returns; at-the-money options priced rich relative to the fitted smile mean-revert. Yet the same signals carry no information about the underlying stock over the same horizon, and a return decomposition rules out a dominant underlying-move channel. The spreads survive controls for past option returns and standard liquidity proxies. They concentrate in the final half-hour of the session and are largest in stocks where open positions cluster at a small number of strikes, consistent with rebalancing of concentrated inventory toward the close. The cross-strike dimension of the option market has its own short-horizon dynamics, distinct from the behavior of the underlying stock.

Dispersion strategies capture the difference in variance dynamics between a basket and its components. Even though smart-beta indices intend to load heavily on a particular factor, factor dispersions based on such baskets are exposed to risks of other factors and idiosyncratic variances. Analyzing factor dispersions through a linear factor model and equicorrelation representations, we recover driving forces behind dispersion dynamics and work out an attribution of a dispersion risk premium. As a balanced combination of systematic and idiosyncratic variance components, dispersion and its risk premium provide signals about future changes in systematic and alpha-based investment opportunities.

The modern FOMC announcement day contains two distinct public communications: the written statement and the Chair's live press conference. Using intraday changes in option-implied volatility to measure firm-level exposure separately across these two windows, I show that the FOMC announcement premium in the cross-section of equity returns is concentrated in the press-conference window. From 2018 onward, firms more exposed to press-conference news outperform less exposed firms by 106 basis points per event, with the average return earned across the broader FOMC day rather than only inside the press-conference hour. A measure estimated from the statement through the press conference is weaker and adds little once the press-conference window is isolated. The premium is concentrated among high-valuation, low-leverage firms, and the return gap between high- and low-exposure firms is sharpest when press-conference surprises are dovish.