Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/87441 
Year of Publication: 
2013
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 13-114/III
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
Since Black (1976), the source of the stock price volatility smirk has remained a controversy. The volatility smirk is a side effect of agency conflict. An important distinction is that the smirk occurs in the optimum, even after agency conflict has been resolved. The slope of the smirk is found to increase with the severity of the initial agency conflict between management and investors. It is predicted that the higher is the compensation of the manager, the steeper will be the volatility smirk, both for time series and cross sections of companies. These results may help to disentangle the leverage effect from other potential explanations like volatility feedback, the time-varying risk premium, and a down-market effect.
Subjects: 
Volatility Smirk
Asymmetric Volatility Smile
Agency Conflict
Debt Externality
Leverage
JEL: 
D81
G12
G13
G32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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