The information of option volume for future stock prices
By: Jun Pan, Allen Poteshman.
Contributors: Poteshman, Allen M.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10925; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10925.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Options (Finance); Stock price forecasting.
Description: "We present strong evidence that option trading volume contains information about future stock price movements.  Taking advantage of a unique dataset from the Chicago Board Options Exchange, we construct put-call ratios from option volume initiated by buyers to open new positions.  On a risk-adjusted basis, stocks with low put-call ratios outperform stocks with high put-call ratios by more than 40 basis points on the next day and more than 1% over the next week.  Partitioning our option signals into components that are publicly and non-publicly observable, we find that the economic source of this predictability is non-public information possessed by option traders rather than market inefficiency.  We also find greater predictability from option signals for stocks with higher concentrations of informed traders and from option contracts with greater leverage"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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Mode of access: World Wide Web.