Real options and asymmetric volatility in light of the firm’s growth opportunities

In Memory of Simon Benninga

Research output: Contribution to journalArticlepeer-review


This study proposes a real options exercise mechanism as a novel explanation for the asymmetric volatility phenomenon. We suggest that asymmetric volatility stems from the exercise of real call options following positive shocks and the exercise of real put options after negative shocks. Furthermore, we uniquely link asymmetric volatility to real options and firm’s growth opportunities. Using US market return data from the period spanning 1926–2018, this paper demonstrates that following a positive market shock generating return volatility, growth-firms exercise more real call options than value-firms. This further alleviates growth-firms’ volatility response, thereby resulting in higher asymmetric volatility. Book-to-market portfolio analyses provide significant empirical evidence that the firm’s growth opportunities intensify the asymmetric volatility phenomenon.

Original languageEnglish
Pages (from-to)105-117
Number of pages13
JournalInvestment Analysts Journal
Issue number2
StatePublished - 2 Apr 2020

Bibliographical note

Funding Information:
We thank Ilan Cooper, Doron Avramov, Simon Benninga, and Avi Wohl for their helpful comments. We also thank seminar participants from the Hebrew University of Jerusalem, Tel Aviv University, Ariel University, the 26th annual meeting of the European Financial Management Association (EFMA) 2017 in Athens, Greece, and the World Finance Conference 2017 in Sardinia, Italy. Financial support from the Rosenfeld Foundation is gratefully acknowledged. Any remaining mistakes are our own.

Publisher Copyright:
© 2020, © 2020 Investment Analysts Society of South Africa.


  • Asymmetric volatility
  • book-to-market
  • growth opportunities
  • market returns

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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