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.
Juan Imbet, Nuria Mata
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.