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
Externally publishedYes

Bibliographical note

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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