In this paper we develop the first estimator of the covariance matrix that relies solely on forward-looking information. This estimator only uses price information from a cross-section of plain-vanilla options. In an out-of-sample study for US blue-chip stocks we show that a minimum-variance...

We develop a new family of estimators of the covariance matrix that relies solely on forwardlooking information. It uses only current prices of plain-vanilla options. In an out-of-sample study we show that a minimum-variance strategy based on these fully-implied estimators outperforms several...

We build on a growing literature that studies the impact of market frictions on the dynamics of stock markets, such as momentum, price spirals, excess volatility, and investigate the potential feedback effects of delta-hedging in derivative markets on the underlying market. We document a link...