14:00 - 16:00
Professor Alex Kostakis
Lectures, talks and seminars
Essex Finance Centre
Essex Business School
Essex Finance Centre is delighted to welcome Professor Alex Kostakis to our weekly research seminar series to present his paper, titled 'Risk-Neutral Skewness and Stock Outperformance'.
This study examines whether out-of-the-money (OTM) option prices, which determine the Risk-Neutral Skewness (RNS) of the underlying stock return distribution, contain information with respect to subsequent stock outperformance. A long-only portfolio containing the stocks with the highest values of RNS, or the biggest increases in RNS (ΔRNS) relative to the previous trading day, yields significant risk-adjusted performance in the post-ranking week during the period 1996-2014. This outperformance is mainly driven by stocks that are relatively underpriced and are exposed to greater downside risk. These findings are consistent with a trading mechanism, according to which investors may choose to exploit perceived stock underpricing by buying OTM call options due to their embedded leverage, rather than directly buying the underlying stock, to avoid exposure to its potential downside risk. In this case, the option market leads the stock market with respect to positive price discovery, but due to the absence of severe limits-to-arbitrage for the long-side, the price correction signalled by RNS is very quick, typically overnight.
Alex Kostakis is Professor of Finance at the Alliance Manchester Business School, University of Manchester. He holds a first-class degree in Banking and Financial Management from the University of Piraeus, an MSc with distinction in Econometrics and Economics, and a PhD in Economics, both from the University of York. His research interests lie in the areas of Asset Pricing, Portfolio Choice and Option-Implied Information. Professor Kostakis' research has been published in the Review of Financial Studies, Management Science, and the Journal of Financial and Quantitative Analysis among other scholarly journals. He has also presented his research in major international conferences such as the Western Finance Association and European Finance Association Meetings as well as at the Bank of England.