Performance Persistence and the Implied Volatility Smile. Evidence from the Nasdaq OMX Copenhagen 25 Stock Index Options

In this article, we examine performance persistence and the implied volatility smile of the Nasdaq OMX Copenhagen 25 stock index options from the period 2010 to 2020. This is the first study that provides a detailed analysis of performance persistence using data from the nasdaqomxnordic website. We show the existence of the implied volatility smile of the Nasdaq OMX Copenhagen 25 stock index options by comparing historical in relation to implied volatility. There is significant time variation in the implied volatility smile and the traditional Black – Scholes model can not explain this deviation. A possible explanation of the volatility smile is the interaction theory between arbitrageurs and noise traders proxied by the bid-ask price. Deep in or out of the money contract has higher implied volatility than historical volatility. We find strong evidence of performance persistence in the Nasdaq OMX Copenhagen 25 stock index options over the third, the fifth and tenth year periods. The results are mixed for both winners and losers. The findings are interesting for academics, investors and practitioners in terms whether there is performance persistence and for how long