Portrait of Dr Nikolaos Voukelatos

Dr Nikolaos Voukelatos

Senior Lecturer in Finance

About

Dr Nikolaos Voukelatos is a Senior Lecturer in Finance and the Director of the MSc Finance at Kent Business School. He has been working in finance since 2005 and he holds a PhD in Finance from Lancaster University.

Research interests

Option returns, option-implied information, forecasting, hedge funds and cross-sectional asset pricing

Teaching

  • Quantitative Methods
  • Fixed Income Markets
  • Finance with Excel
  • Research Methods and Skills

Supervision

Dr Nikolaos Voukelatos is currently supervising a number of PhD students. He welcomes applications related to his research area.

Supervision topics

  • Option-implied distributions
  • Option returns
  • Detecting priced factors in the cross-section of asset returns
  • Hedge fund performance

Current supervisees

  • Xiaohang Sun: Decomposition of Option Implied information and Its Applications  
  • Enoch Quaye: Volatility Relations in Stocks, Dividends, and Lifetime Income
  • Ioanna Lachana: The impact of unstructured news on financial markets 
  • Seyedmehdi Hosseini: Stock Market and Its Determinants: Three Empirical Studies
  • Irkalis Apergis: The Predictive Content of Option Prices for Asset Returns
  • Eirini Bersimi: Volatility Forecasting and Asset Allocation in Portfolio Management

Past supervisees

  • Andromachi Papachristopoulou: Policy uncertainty: Implications for financial sector stability 
  • Catalin Cantia: Levy Factor Models for Financial Applications

Publications

Article

  • Bernales, A., Verousis, T., Voukelatos, N. and Zhang, M. (2020). What do we know about individual equity options?. Journal of Futures Markets [Online] 40:67-91. Available at: https://doi.org/10.1002/fut.22066.
    This paper examines the empirical literature on individual equity options, discussing results in areas of consensus, showing findings in areas of disagreement and providing a guide for future research (especially highlighting analyses that cannot be performed with index options). Key topics include the impact of equity option listings on the underlying stock market, option market efficiency, anomalies in equity option returns, option market microstructure, investors' behavioural biases, option price discovery and private information revealed in equity option markets. Some directions for future research include the determinants of equity option returns and the effect of algorithmic trading in option markets.
  • Verousis, T. and Voukelatos, N. (2019). Option-implied information and stock herding. International Journal of Finance & Economics [Online] 24:1429-1442. Available at: https://doi.org/10.1002/ijfe.1741.
    In this paper, we examine if herding behavior in the equity market can be explained by option-implied information. Our empirical results confirm the commonly reported absence of herding as a general tendency in the US equity market. However, we find evidence of significant herding behavior during periods when option-implied information reflects a pessimistic view about the future prospects of the equity market. More specifically, we find that individual stock returns tend to cluster more closely around the market consensus during days of high implied index volatility, more pronounced negative implied skewness and higher trading volume in index puts.
  • Verousis, T. and Voukelatos, N. (2018). Cross-Sectional Dispersion and Expected Returns. Quantitative Finance [Online] 18. Available at: https://doi.org/10.1080/14697688.2017.1414515.
    This study investigates whether the cross-sectional dispersion of stock returns, which reflects the aggregate level of idiosyncratic risk in the market,represents a priced state variable. We find that stocks with high sensitivities to dispersion offer low expected returns. Furthermore, a zero-cost spread portfolio that is long (short) in stocks with low (high) dispersion betas produces a statistically and economically significant return, after accounting for its exposure to other systematic risk factors. Dispersion is associated with a significantly negative risk premium in the cross-section (-1.32% per annum) which is distinct from premia commanded by a set of alternative systematic factors. These results are robust to a wide set of stock characteristics, market conditions, and industry groupings.
  • Verousis, T., ap Gwilym, O. and Voukelatos, N. (2016). Commonality in equity options liquidity: Evidence from NYSE LIFFE. European Journal of Finance [Online] 22:1204-1223. Available at: http://dx.doi.org/10.1080/1351847X.2016.1188836.
    This paper examines the commonality in liquidity for individual equity options trading at NYSE LIFFE. We use high-frequency data to construct a novel index of liquidity commonality and we find that it can explain a substantial proportion of the liquidity variation of individual options. The explanatory power of the common liquidity factor is more pronounced during periods of higher implied volatility at the market level. The common factor’s impact on individual options’ liquidity is found to depend on the options’ idiosyncratic characteristics, while there is limited evidence of systematic liquidity spillover effects among the NYSE LIFFE exchanges.
  • Bernales, A., Verousis, T. and Voukelatos, N. (2016). Do Investors Follow the Herd in Option Markets?. Journal of Banking and Finance [Online]. Available at: http://dx.doi.org/10.1016/j.jbankfin.2016.02.002.
    We investigate the previously unexplored herding behaviour of investors in option markets, by examining equity option contracts traded in the US between 1996 and 2012. We document strong herding effects in option trading activity that are conditional on a set of systematic factors related to periods of market stress. More specifically, we find that option investors tend to herd during periods of high market volatility risk, on dates of macroeconomic announcements, during the financial crisis of 2008, when a large number of market option positions is either opened or closed, and during periods of a large average dispersion of analysts' forecasts.
  • Verousis, T., ap Gwilym, O. and Voukelatos, N. (2015). The Impact of a Premium-Based Tick Size on Equity Option Liquidity. Journal of Futures Markets [Online] 36:397-417. Available at: http://dx.doi.org/10.1002/fut.21734.
    On June 2, 2009, NYSE LIFFE Amsterdam reduced the tick size for options trading at prices below 0.20 from 0.05 to 0.01 and on April 1, 2010, the exchange increased the price threshold to 0.50. We study the effect of that tick size reduction on the liquidity of individual equity options. In this respect, this study is uniquely positioned in the options context where moneyness is a clear additional factor in the implementation of the tick size changes. We show that, in general, quoted and traded option liquidity increased but at a rate decreasing with option moneyness. Real costs fell more for the lower priced contracts. Importantly, we show that the ability of the market to absorb larger trades has potentially diminished after the change in the tick size. We document a substantial increase in quote revisions which implies an increase in price competition and, as a result, an improvement in market quality. Finally, the decrease in the tick size led to an increase in hedging activity using deep-out-of-the-money puts.
  • Shackleton, M. and Voukelatos, N. (2013). Hedging efficiency in the Greek options market before and after the financial crisis of 2008. Journal of Multinational Financial Management [Online] 23:1-18. Available at: http://dx.doi.org/10.1016/j.mulfin.2012.10.005.
    This study examines the hedging effectiveness of the emerging Greek options market before and after the financial crisis of 2008. We test the hypothesis of market efficiency by analyzing violations of FTSE/ASE-20 index option returns with respect to standard option theory, estimating option risk-premia, and testing the statistical significance of the returns to delta and delta–vega neutral straddles. Our empirical results suggest that, despite a certain level of mispricing, the Athens Derivatives Exchange maintained a relative level of efficiency before 2008. However, the economic crisis has had a significant impact on the Greek options market, as evidenced by more pronounced violations of theoretical predictions observed in option returns and risk-premia. These findings have direct implications for the risk management of international portfolios, since the feasibility and effectiveness of hedging exposure in Greek investments is found to have declined precisely when it is needed the most.
  • Voukelatos, N. (2010). The Asymmetric Impact Of Firm-specific And Of Index. Returns On The Volatility Processes Of Individual Stocks. Applied Financial Economics [Online] 20:1627-1638. Available at: http://dx.doi.org/10.1080/09603107.2010.515202.
    This article examines the volatility processes of the 30 constituent stocks of the Dow Jones Industrial Average (DJIA) from 1998 to 2007. Estimating the standard Glosten, Jagannathan and Runkle (GJR) model across the DJIA's components confirms previous empirical findings of individual stocks' conditional variances being less asymmetric than that of the parent index. A modified specification is then tested, termed the GJR-I, where lagged signed market returns have replaced firm-specific returns. The results suggest that individual stock volatility is significantly correlated with past signed index returns and that the asymmetry phenomenon is more pronounced with respect to market news compared to firm-specific news. This result still holds after estimating an extended specification where the conditional variance responds both to idiosyncratic and systematic innovations. The fact that individual stock volatility responds more asymmetrically to market returns than to firm specific returns stands in contrast to the 'leverage effect' as well as 'volatility feedback' explanations, but it is consistent with the hypothesis of the volatility asymmetry phenomenon being a 'down market effect',

Conference or workshop item

  • Argyropoulos, C., Panopoulou, E., Voukelatos, N. and Zheng, T. (2019). Hedge Fund Return Predictability in the Presence of Model Risk. In: 13th International Conference on Computational and Financial Econometrics.
    Hedge funds implement elaborate investment strategies that include a variety of positions and assets. As a result, there is signifcant time variation in the set of risk factors and their respective loadings which in turn introduces severe model risk in any attempt to model and forecast hedge fund returns. In this study, we investigate the statistical and economic value of incorporating heteroscedasticity, non-normality, time-varying parameters, model selection risk and parameter estimation risk jointly in hedge fund return forecasting and fund of funds construction. Parameter estimation risk is dealt with a time-varying parameter structure, while model selection uncertainty is mitigated by model averaging or model selection. We adopt a dynamic model averaging approach along with the conventional Bayesian averaging technique. Our empirical results suggest that accounting for model risk can signifcantly improve the forecasting accuracy of hedge fund returns and, consequently, the performance of funds of hedge funds.
  • Panopoulou, E. and Voukelatos, N. (2017). The Role of Strategy Distinctiveness in Hedge Fund Performance. In: 7th International Conference of the Financial Engineering and Banking Society. Available at: http://febs2017.eventsadmin.com/Home/Welcome.
    This paper proposes a new measure of strategy distinctiveness for hedge funds, termed the Dispersion Contribution Index (DCI). This measure is based on a fund's return-distance from the mean return of same-style funds. We find that funds with more distinctive strategies tend to underperform relative to their less distinctive peers, after accounting for their idiosyncratic characteristics. This relative underperformance stems primarily from the higher risk exposure associated with pursuing a unique strategy. Our findings are robust to a wide array of additional tests.
  • Tunaru, R. and Voukelatos, N. (2017). Insurance Against Volatility Risk or Negative Skewness as Reflected by Option Returns in Emerging European Markets. In: 2017 Annual Meetings of the European Financial Management Association. Available at: http://www.efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2017-Athens/2017%20meetings.php.
    This study examines the risk premia embedded in index option prices using a sample of emerging European Union countries. In contrast to the `over-priced puts puzzle' in the US market, writing puts in developing European exchanges is found to offer insignificant returns after accounting for risk. However, investors were paying a substantial premium for insurance against
    volatility risk, especially during the crisis. Insurance against negative skewness also commanded a high premium before the crisis, that disappeared post 2008. The returns of profitable option-selling strategies cannot be explained in an obvious way as compensation for risk across a set of factors.
  • Verousis, T. and Voukelatos, N. (2016). Cross-Sectional Dispersion and Expected Returns. In: 2016 Financial Management Association Annual Meeting. Available at: http://www.fma.org/Vegas/Papers/Verousis_and_Voukelatos_2015.pdf.
  • Panopoulou, E. and Voukelatos, N. (2016). The Role of Strategy Distinctiveness in Hedge Fund Performance. In: 8th Conference of the International Finance and Banking Society. Available at: http://www.ifabs.org/conference/view/6.
    This paper proposes a new measure of strategy distinctiveness for hedge funds, termed the Dispersion Contribution Index (DCI). This measure is based on a fund's return-distance from the mean return of same-style funds. We find that funds with more distinctive strategies tend to underperform relative to their less distinctive peers, after accounting for their idiosyncratic characteristics. This relative underperformance stems primarily from the higher risk exposure associated with pursuing a unique strategy. Our findings are robust to a wide array of additional tests.
  • Panopoulou, E. and Voukelatos, N. (2015). The Role of Strategy Distinctiveness in Hedge Fund Performance. In: 9th International Conference on Computational and Financial Econometrics. Available at: http://www.cfenetwork.org/CFE2015/.
    This paper proposes a new measure of strategy distinctiveness for hedge funds, termed the Dispersion Contribution Index (DCI). This measure is based on a fund's return-distance from the mean return of same-style funds. We find that funds with more distinctive strategies tend to underperform relative to their less distinctive peers, after accounting for their idiosyncratic characteristics. This relative underperformance stems primarily from the higher risk exposure associated with pursuing a unique strategy. Our findings are robust to a wide array of additional tests.
  • Verousis, T. and Voukelatos, N. (2015). Cross-sectional dispersion and expected returns. In: 5th International Conference of the Financial Engineering and Banking Society - Banking, Financial Markets, Risk and Financial Vulnerability. Available at: http://febs2015.eventsadmin.com/Home/Welcome.
  • Verousis, T. and Voukelatos, N. (2015). Cross-sectional dispersion and expected returns. In: 11th BMRC-DEMS Conference on Macro and Financial Economics/Econometrics. Available at: http://www.econometricopedia.com/annual-conferences/11th-bmrc-dems-conference-on-macro-and-financial-economicseconometrics-18-19th-of-may-2015/.
  • Bernales, A., Verousis, T. and Voukelatos, N. (2015). Do investors follow the herd in option markets?. In: 32nd International Conference of the French Finance Association. Available at: http://affi-2015.essec.edu/.
    We investigate the previously unexplored herding behaviour of investors in option markets, by examining equity option contracts traded in the US between 1996 and 2012. We document strong herding effects in option trading activity that are conditional on a set of systematic factors related to periods of market stress. More specifically, we find that option investors tend to herd during periods of high market volatility risk, on dates of macroeconomic announcements, during the financial crisis of 2008, when a large number of market option positions is either opened or closed, and during periods of a large average dispersion of analysts' forecasts.
  • Bernales, A., Verousis, T. and Voukelatos, N. (2015). Do investors follow the herd in option markets?. In: 7th International Finance and Banking Society Conference. Available at: http://www.ifabsconference.com/.
    We investigate the previously unexplored herding behaviour of investors in option markets, by examining equity option contracts traded in the US between 1996 and 2012. We document strong herding effects in option trading activity that are conditional on a set of systematic factors related to periods of market stress. More specifically, we find that option investors tend to herd during periods of high market volatility risk, on dates of macroeconomic announcements, during the financial crisis of 2008, when a large number of market option positions is either opened or closed, and during periods of a large average dispersion of analysts' forecasts.
  • Bernales, A., Verousis, T. and Voukelatos, N. (2014). Do Investors Follow the Herd? Evidence from the Options Market. In: 4th International Conference of the Financial Engineering and Banking Society.
  • Verousis, T., ap Gwilym, O. and Voukelatos, N. (2014). The Impact of a Premium Based Tick Size Change on Equity Option Liquidity. In: 2014 FMA European Conference. Available at: http://www.fma.org/Maastricht/MaastrichtIndex.htm.
  • Verousis, T., ap Gwilym, O. and Voukelatos, N. (2014). The Impact of a Premium Based Tick Size on Equity Option Liquidity. In: 31st Spring International Conference of the French Finance Association.
  • Verousis, T., ap Gwilym, O. and Voukelatos, N. (2014). Equity option liquidity after the introduction of the Premium Based Tick Size on NYSE LIFFE Amsterdam. In: 7th Financial Risks International Forum – Big Data in Finance and Insurance. Available at: http://risk2014.institutlouisbachelier.org/fichiers/bibliotheque/files/slide/parallel-session-9/paper-thanos-verousis.pdf.
    On June 2, 2009, NYSE LIFFE Amsterdam reduced the tick size of options trading
    below €0.20 from €0.05 to €0.01 and on April 1, 2010, the exchange increased the price
    threshold to €0.50. In this paper, we study the effect of that tick size reduction on the liquidity
    of individual equity options. We show that, in general, quoted and traded option liquidity
    increased but at a rate decreasing with option moneyness. Real costs have fallen more for the
    lower priced contracts. Importantly, we show that the ability of the market to absorb larger
    trades has diminished after the change in the tick size. We document a substantial increase in
    quote revisions that implies that the decrease in tick size has potentially led to a worsening of
    the order book, as it allows traders to take advantage of the price priority rule and step ahead
    of larger trades. Finally, the decrease in the tick size has led to an increase of speculative
    trading behaviour.
  • Voukelatos, N. (2013). The Performance of Option Trading Strategies in the EU Periphery. In: 5th International Finance and Banking (IFABS) Conference.
  • Voukelatos, N. (2013). The Performance of Option Trading Strategies in the EU Periphery. In: 3rd International Conference of the Financial Engineering and Banking Society (FEBS).
  • Pavlidis, E., Shackleton, M. and Voukelatos, N. (2012). Foreign Exchange Implied. Variance and the Forward Premium Puzzle. In: 2nd International Conference of the Financial Engineering and Banking Society (FEBS). Available at: http://www.rcem.eu/media/37755/full_programme.pdf.
    We explore the hypothesis that Jensen’s Inequality is related to the magnitude
    of the commonly observed difference between forward rates and the
    subsequent realizations of spot exchange rates. Compared to the standard
    specification, it is shown that using the option-implied variance of the spot rate
    as an additional regressor in the unbiased forward specification results in slope
    coefficients that are closer to their theoretical value of unity. Furthermore,
    implied variance is found to have a higher explanatory power over future spot
    returns compared to that of the forward premium. Our empirical findings are
    consistent with the hypothesis that the time-varying risk-premium documented
    in previous studies contains a Jensen’s term of the future spot variance.
  • Pavlidis, E., Shackleton, M. and Voukelatos, N. (2012). Foreign Exchange Implied. Variance and the Forward Premium Puzzle. In: 9th Applied Financial Economics (AFE) Conference. Available at: http://www.ineag.gr/AFE/images/pdf/AFE%202012%20Programme.pdf.
    We explore the hypothesis that Jensen’s Inequality is related to the magnitude
    of the commonly observed difference between forward rates and the
    subsequent realizations of spot exchange rates. Compared to the standard
    specification, it is shown that using the option-implied variance of the spot rate
    as an additional regressor in the unbiased forward specification results in slope
    coefficients that are closer to their theoretical value of unity. Furthermore,
    implied variance is found to have a higher explanatory power over future spot
    returns compared to that of the forward premium. Our empirical findings are
    consistent with the hypothesis that the time-varying risk-premium documented
    in previous studies contains a Jensen’s term of the future spot variance.
  • Pavlidis, E., Shackleton, M. and Voukelatos, N. (2012). Foreign Exchange Implied. Variance and the Forward Premium Puzzle. In: Time-Varying Correlation and Volatility Symposium. Available at: http://www.wlv.ac.uk/PDF/UWBS-symposium-programme.pdf.
    We explore the hypothesis that Jensen’s Inequality is related to the magnitude
    of the commonly observed difference between forward rates and the
    subsequent realizations of spot exchange rates. Compared to the standard
    specification, it is shown that using the option-implied variance of the spot rate
    as an additional regressor in the unbiased forward specification results in slope
    coefficients that are closer to their theoretical value of unity. Furthermore,
    implied variance is found to have a higher explanatory power over future spot
    returns compared to that of the forward premium. Our empirical findings are
    consistent with the hypothesis that the time-varying risk-premium documented
    in previous studies contains a Jensen’s term of the future spot variance.
  • Shackleton, M. and Voukelatos, N. (2009). An Examination of the Efficiency of Emerging. Options Markets: The Case of the Athens Derivatives Exchange. In: 18th Annual Meeting of the European Financial Management Association (EFMA). Available at: http://www.efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2009-milan/efma_program2009_12JuneWEB.pdf.

Thesis

  • Cantia, C. (2016). Lévy Factor Models for Financial Applications.
    In this thesis we bring a series of contributions to the topic of multivariate asset modelling with
    dependence.
    In the first part of the thesis (chapters 2, 3 and 4) we look at equity modelling by factor models obtained by multivariate subordination of Lévy basis and discuss multi-asset derivative pricing by Fourier transform methods. More specifically, in the second chapter we propose a construction method for obtaining factor models based on multivariate subordination which extends the results of Barndorff-Nielsen et al. (2001). A lemma describing the characteristic function for the entire class of models is provided which opens the gates for multi-asset derivative pricing by Fourier transform methods under this class of models. Classification, parametrisation and the dependence structure details for the models in this class are then discussed in the second part of the chapter. The chapters 3 and 4 propose each a different three-factor model for the evolution of equity returns and provide the details of martingale asset pricing, calibration and multi-asset derivative pricing methods under
    the specific model. The specific applications that are treated are the spread options, in chapter 3 and CVA evaluation for forward contracts, in chapter 4.
    In the second part of the thesis (chapter 5) we look at the multi-name credit modelling in the context of factor models built by time-changes. Specifically, we propose a factor extension of the univariate default model proposed in Packham et al. (2013)and then we discuss the calibration and the pricing methodology (including details of their implementation) for single-name and multi-name credit derivatives contracts. The specific applications that are treated are the pricing and calibration on Credit Default Swaps, Credit Index Default Swaps and Index Tranches (synthetic CDOs).
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