RIVolSpread · Optionrisk · Bali and Hovakimian (2009)

Realized minus Implied Vol

Long minus short quintile portfolio, value-weighted, market-adjusted. Quarterly, 1996Q2 to 2022Q4.

Expected return · posterior mean, % per quarter

Next quarter

0.78%

95% interval −0.35% to 2.11%

Next year

0.83%

95% interval −0.39% to 2.13%

Next five years

0.97%

95% interval −0.50% to 2.29%

Next quarter

0.78%

95% interval −0.35% to 2.10%

Next year

0.83%

95% interval −0.39% to 2.12%

Next five years

0.97%

95% interval −0.50% to 2.28%

Next quarter

0.48%

95% interval −1.44% to 2.58%

Next year

0.60%

95% interval −1.34% to 2.60%

Next five years

0.96%

95% interval −1.12% to 2.85%

Next quarter

0.48%

95% interval −1.42% to 2.57%

Next year

0.61%

95% interval −1.31% to 2.59%

Next five years

0.97%

95% interval −1.09% to 2.82%

Cumulative market-adjusted return

+347% since 1996Q2 · log scale

Window	Mean	Vol.	Sharpe	t
1996Q2–2022Q4	6.43%	13.00%	0.49	2.56
2018Q1–2022Q4	3.68%	16.12%	0.23	0.51
2022Q1–2022Q4	8.17%	11.76%	0.69	0.69
1996Q2–2022Q4	6.43%	13.00%	0.49	2.56
2018Q1–2022Q4	3.68%	16.12%	0.23	0.51
2022Q1–2022Q4	8.17%	11.76%	0.69	0.69
1996Q2–2022Q4	6.78%	18.80%	0.36	1.87
2018Q1–2022Q4	−1.64%	24.84%	−0.07	−0.15
2022Q1–2022Q4	−5.11%	28.44%	−0.18	−0.18
1996Q2–2022Q4	6.78%	18.80%	0.36	1.87
2018Q1–2022Q4	−1.64%	24.84%	−0.07	−0.15
2022Q1–2022Q4	−5.11%	28.44%	−0.18	−0.18

Horizon	Mean	95% interval	P(neg)
Next quarter	0.121	−0.055 – 0.325	0.11
Next year	0.128	−0.060 – 0.328	0.10
Next five years	0.149	−0.077 – 0.352	0.09
Next quarter	0.120	−0.055 – 0.324	0.11
Next year	0.127	−0.061 – 0.327	0.10
Next five years	0.149	−0.077 – 0.351	0.09
Next quarter	0.051	−0.156 – 0.275	0.35
Next year	0.064	−0.144 – 0.277	0.29
Next five years	0.103	−0.119 – 0.302	0.17
Next quarter	0.051	−0.154 – 0.274	0.35
Next year	0.064	−0.141 – 0.276	0.28
Next five years	0.103	−0.116 – 0.300	0.16