Does government ownership differently impact expected left-tail and volatility risk of bank stock? Evidence from options market

Srivastava, Pranjal, Saurav, Sumit and Mishra, Abinash (2025) Does government ownership differently impact expected left-tail and volatility risk of bank stock? Evidence from options market. Journal of Corporate Finance, 94: 102832. pp. 1-28. ISSN 0929-1199

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Abstract

We examine the differences in the options implied left-tail risk and volatility of governmentowned and private banks in India. We show that left-tail risk and the cost of insurance for protection against it are high for private banks as compared to government-owned banks, despite their superior asset quality. The COVID-19 crisis, an exogenous shock to systematic risk, increased the left-tail risk more for private banks. Furthermore, the effect of government ownership on left-tail risk is more significant for smaller banks compared to larger banks. Contrary to our left-tail risk result, we find that government-owned banks have higher near-themoney options implied volatility than private banks. Our findings suggest that while government ownership mitigates expected downside risk, it also leads to higher expected volatility due to riskier lending policies and uncertainties about capital infusions.

Item Type: Article
Keywords: Government Ownership | Banks | Left-tail risk | Implied volatility | Options market | India
Subjects: Social Sciences and humanities > Economics, Econometrics and Finance > Econometrics
JGU School/Centre: Jindal Global Business School
Depositing User: Mr. Luckey Pathan
Date Deposited: 30 Jun 2025 11:41
Last Modified: 30 Jun 2025 11:41
Official URL: https://www.sciencedirect.com/science/article/pii/...
URI: https://pure.jgu.edu.in/id/eprint/9729

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