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

Andreou, P.C.; Kagkadis, A.; Philip, D.; Tuneshev, T.

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.

Citation

Andreou, P., Kagkadis, A., Philip, D., & Tuneshev, T. (2018). Differences in options investors' expectations and the cross-section of stock returns. Journal of Banking and Finance, 94, 315-336. https://doi.org/10.1016/j.jbankfin.2018.07.016

• Journal Article Type: Article
• Acceptance Date: Jul 26, 2018
• Online Publication Date: Aug 2, 2018
• Publication Date: Sep 30, 2018
• Deposit Date: Jul 26, 2018
• Publicly Available Date: Feb 2, 2020
• Journal: Journal of Banking and Finance
• Print ISSN: 0378-4266
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 94
• Pages: 315-336
• DOI: https://doi.org/10.1016/j.jbankfin.2018.07.016
• Public URL: https://durham-repository.worktribe.com/output/1353509