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What can the risk neutral moments tell us about future returns?

July 16, 2015

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2015. The project is a required component of every master program.


Authors:
Juan Imbet, Nuria Mata

Master’s Program:
Finance

Paper Abstract:

We test if the first four moments of the risk neutral distribution implicit in options’ prices predict market returns. We estimate the risk
neutral distribution of the S&P 500 over different frequencies using a non parametric polynomial fitting, and test if the first four moments of the distribution predict returns of the S&P 500. Our results suggest that there is no evidence on this predictability power.

Presentation Slides:

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