Bing-Huei LinDean PaxsonJr Yan WangMei-Mei Kuo2022-05-262022-05-262022-031023-280Xhttps://scholars.lib.ntu.edu.tw/handle/123456789/612072The main novelty of this paper is to develop a preference-free option pricing formula which involves index return volatility and the alpha, beta, and firm-specific risk of underlying stock returns by formulating option payoffs with the market model in the multivariate risk-neutral valuation framework. We thus estimate the option implicit market model, namely the forward-looking alpha, beta, and firm-specific risk, by calibrating equity and index option prices. Empirical illustration indicates that our model calibrates equity options accurately, the CAPM holds with option-implied estimates, and option-implied estimates are more effective than regression-based historical estimates in predicting alpha, beta, firm-specific risk, and stock returns (conditional on the contemporaneous index returns) in a future horizon.zhForward-looking alpha; Forward-looking beta; Forward-looking firm-specific risk; Option implicit market model; Risk-neutral valuation relationshipjournal article10.6529/RSFM.202203_34(1).0001https://www.airitilibrary.com/Publication/alDetailedMesh?DocID=1023280X-202203-202203310012-202203310012-1-63&PublishTypeID=P001