Template-type: ReDIF-Paper 1.0
Author-Name: Marcin Jaskowski
Author-Workplace-Name: Erasmus School of Economics, Erasmus University Rotterdam
Author-Name: Michael McAleer
Author-Person: pmc90 
Author-Workplace-Name: Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute,
	The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, and Institute of
	Economic Research, Kyoto University. 
Title: Volatility Smirk as an Externality of Agency Conict and Growing Debt
Abstract: Since Black (1976), the source of the stock price volatility smirk has remained a controversy. The 
	volatility smirk is a side eect of agency conict. An important distinction is that the smirk occurs in the 
	optimum, even after agency conict has been resolved. The slope of the smirk is found to increase with the 
	severity of the initial agency conict 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 eect from other potential 
	explanations like volatility feedback, the time-varying risk premium, and a down-market effect.
Classification-JEL: D81, G12, G13, G32.
Keywords: Volatility Smirk, Asymmetric Volatility Smile, Agency Conict, Debt Externality, Leverage.
Note: Acknowledgments: The authors wish to thank Dick van Dijk, Eberhard Mayerhofer, Yuliy Sannikov and
 Wing Wah 
	Tham for helpful comments and suggestions.
 yFor nancial support, the second author wishes to acknowledge 
	the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion 
	of Science. 
Length: 20 pages 
Creation-Date: 2013
Revision-Date: 2013-08  
Number: 2013-29 
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1329.txt
File-URL: https://eprints.ucm.es/id/eprint/22630/1/1329.pdf
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Handle: RePEc:ucm:doicae:1329