Option-implied betas and the cross section of stock returns: HARRIS et al.

We investigate the cross-sectional relationship between stock returns and a number of measures of option-implied beta. Using portfolio analysis, we show that the method proposed by Buss and Vilkov (2012, The Review of Financial Studies, 2525, 3113-3140) leads to a stronger relationship between implied beta and stock returns than other approaches. However, using the Fama and MacBeth (1973, Journal of Political Economy, 8181, 607-636) cross-section regression methodology, we show that the relationship is not robust to the inclusion of other firm characteristics. We further show that a similar result holds for implied downside beta. We, therefore, conclude that there is no robust relation between option-implied beta and returns.