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Volatility Disagreement in the Options Market

Bibliographic record. Follow the original-source link for the publication.

Field Value
Primary domain Option Returns
Other domains Volatility, Hedging Exposure Risk
Methods Financial Ml
Facets Structure Straddle
Authors Turan G. Bali, Bryan T. Kelly, Mathis Mörke
Published 2026-07-16
Source NBER Asset Pricing
Identifiers doi:10.3386/w35500, nber:w35500
URL Open original source

Editorial synthesis

Why it matters

The study turns dispersion across heterogeneous-information machine-learning forecasts into a stock-level volatility-disagreement measure and relates it to delta-hedged straddle returns and position opening. (abstract:S1, abstract:S2, abstract:S3)

Main author claims

  • The authors define volatility disagreement as cross-sectional dispersion in realized-variance forecasts produced from heterogeneous information sets and machine-learning models. (abstract:S1)
  • The authors report a 5.14% monthly long-short spread from sorting single-name delta-hedged straddles on the measure and state that known option-return predictors do not subsume it. (abstract:S2)
  • The authors report that a one-standard-deviation increase in volatility disagreement is associated with 30% more option position opening and interpret the attention, ownership, and arbitrage-cost evidence as more consistent with mispricing. (abstract:S3, abstract:S5)

Data, method, or discussion scope

The abstract supports the measure definition, the single-name delta-hedged straddle sort, a monthly return spread, the position-opening association, and the authors' mispricing interpretation; it does not provide the full sample construction, portfolio-leg convention, or execution assumptions. (abstract:S1, abstract:S2, abstract:S3, abstract:S5)

Main limitations

The abstract does not specify the long-short leg convention, and 5.14% is not an executable net return after bid-ask costs, fees, slippage, margin financing, market impact, and capacity; mispricing is the authors' preferred interpretation rather than a uniquely identified mechanism. (abstract:S2, abstract:S5)

Relationships

  • None recorded.