Publication Type
PhD Dissertation
Version
publishedVersion
Publication Date
1-2018
Abstract
We uncover a novel stock return predictor from the options market, the volume-weighted strike-spot price ratio (VWKS) across all traded option contracts. High (low) VWKS indicates that the mass of options volume on an underlying stock centers at the out-of-the-money region of call (put) options. Empirically, VWKS has positive and robust predictive ability for underlying returns after controlling for a long list of variables including known return predictors from the options market, stock illiquidity, and past stock returns, and has more persistent and stronger predictive power for stocks with higher information asymmetry and arbitrage costs. We also find that VWKS exhibits abnormal run-ups and becomes more informative before permanent but not transitory price jumps, suggesting that options traders exploit only fundamental information. Finally, VWKS significantly predicts the merger premium in an event study.
Keywords
Options, Volume, Stock return predictability, Center of mass, ETF, Information
Degree Awarded
PhD in Business (Finance)
Discipline
Finance and Financial Management
Supervisor(s)
HU, Jianfeng
Publisher
Singapore Management University
City or Country
Singapore
Citation
GAO, Fei.
Essay on asset pricing. (2018).
Available at: https://ink.library.smu.edu.sg/etd_coll/168
Copyright Owner and License
Author
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.