Differences in options investors’ expectations and the cross-section of stock returns

Andreou, Panayiotis and Kagkadis, Anastasios and Philip, Dennis and Tuneshev, Ruslan (2018) Differences in options investors’ expectations and the cross-section of stock returns. Journal of Banking and Finance, 94. pp. 315-336. ISSN 0378-4266

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Abstract

We provide strong evidence that the dispersion of individual stock options trading volume across moneynesses (IDISP) contains valuable information about future stock returns. Stocks with high IDISP consistently underperform those with low IDISP by more than 1% per month. In line with the idea that IDISP reflects dispersion in investors’ beliefs, we find that the negative IDISP-return relationship is particularly pronounced around earnings announcements, in high sentiment periods and among stocks that exhibit relatively high short-selling impediments. Moreover, the IDISP effect is highly persistent and robustly distinct from the effects of a large array of previously documented cross-sectional return predictors.

Item Type: Journal Article
Journal or Publication Title: Journal of Banking and Finance
Additional Information: This is the author’s version of a work that was accepted for publication in Journal of Banking & Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking & Finance, 94, 2018 DOI: 10.1016/j.jbankfin.2018.07.016
Uncontrolled Keywords: /dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
Departments: Lancaster University Management School > Accounting & Finance
ID Code: 126609
Deposited By: ep_importer_pure
Deposited On: 30 Jul 2018 10:54
Refereed?: Yes
Published?: Published
Last Modified: 08 Oct 2019 13:25
URI: https://eprints.lancs.ac.uk/id/eprint/126609

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