skew1 · Optionrisk · Xing, Zhang and Zhao (2010)

Volatility smirk near the money

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

Expected return · posterior mean, % per quarter

Next quarter

0.01%

95% interval −1.50% to 1.53%

Next year

0.12%

95% interval −1.35% to 1.54%

Next five years

0.42%

95% interval −0.98% to 1.65%

Next quarter

0.62%

95% interval −0.34% to 1.61%

Next year

0.67%

95% interval −0.30% to 1.62%

Next five years

0.81%

95% interval −0.19% to 1.67%

Next quarter

−0.40%

95% interval −1.82% to 1.52%

Next year

−0.20%

95% interval −1.69% to 1.58%

Next five years

0.39%

95% interval −1.36% to 2.03%

Next quarter

0.85%

95% interval −0.29% to 2.08%

Next year

0.90%

95% interval −0.27% to 2.09%

Next five years

1.05%

95% interval −0.21% to 2.16%

Cumulative market-adjusted return

+105% since 1996Q2 · log scale

Window	Mean	Vol.	Sharpe	t
1996Q2–2022Q4	3.46%	12.43%	0.28	1.44
2018Q1–2022Q4	−3.20%	12.18%	−0.26	−0.59
2022Q1–2022Q4	−18.01%	8.24%	−2.19	−2.19
1996Q2–2022Q4	5.16%	8.40%	0.61	3.18
2018Q1–2022Q4	1.31%	8.71%	0.15	0.34
2022Q1–2022Q4	−4.58%	7.89%	−0.58	−0.58
1996Q2–2022Q4	4.82%	15.23%	0.32	1.64
2018Q1–2022Q4	−1.76%	14.45%	−0.12	−0.27
2022Q1–2022Q4	−24.11%	13.98%	−1.72	−1.72
1996Q2–2022Q4	6.62%	10.75%	0.62	3.18
2018Q1–2022Q4	2.39%	10.99%	0.22	0.49
2022Q1–2022Q4	−2.93%	9.52%	−0.31	−0.31

Horizon	Mean	95% interval	P(neg)
Next quarter	0.001	−0.248 – 0.247	0.49
Next year	0.018	−0.219 – 0.248	0.44
Next five years	0.068	−0.157 – 0.266	0.25
Next quarter	0.149	−0.083 – 0.385	0.13
Next year	0.160	−0.072 – 0.385	0.10
Next five years	0.193	−0.046 – 0.398	0.05
Next quarter	−0.054	−0.246 – 0.200	0.71
Next year	−0.027	−0.225 – 0.209	0.62
Next five years	0.051	−0.179 – 0.266	0.32
Next quarter	0.159	−0.056 – 0.387	0.09
Next year	0.168	−0.050 – 0.388	0.07
Next five years	0.195	−0.039 – 0.403	0.05