This paper develops a new approach to explain why risk factors constructed from option returns are priced in the stock market. We decompose an option- based factor into three main components and identify the one responsible for the beta-return relationship. Applying this method to the bear risk...

Human activities widely exhibit a power-law distribution. Considering stock trading as a typical human activity in the financial domain, the first aim of this paper is to validate whether the well-known power-law distribution can be observed in this activity. Interestingly, this paper determines...