Examining the relationship between leverage and implied volatility in the Oslo stock exchange
Bachelor thesis
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https://hdl.handle.net/11250/3159631Utgivelsesdato
2024Metadata
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- Bachelor [880]
Sammendrag
This thesis investigates the relationship between the leverage of Norwegian companies and the implied volatility of their stock options. Implied volatility reflects market expectations of future stock price fluctuations and is a key factor in option pricing. This thesis examines whether companies with higher leverage levels exhibit higher implied volatility, suggesting greater perceived risk by investors. A reduced form linear regression specification was conducted to explore this relationship. The analysis employed data on Norwegian companies, including leverage ratios and corresponding implied volatilities on a quarterly interval from Q1 2014 to Q4 2023. The results of the analysis yielded no consistent correlation between leverage and implied volatility. This suggests that market participants may not place a substantial emphasis on debt ratios when assessing risk in a quarterly timeframe. Potential explanations for the findings and their implications in relation to previous empirical evidence are discussed to provide a nuanced perspective.
Beskrivelse
Bacheloroppgave i Økonomi og administrasjon fra Handelshøyskolen BI, 2024