The Information Content of Option Prices Regarding Future Stock Return Serial Correlation PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download The Information Content of Option Prices Regarding Future Stock Return Serial Correlation PDF full book. Access full book title The Information Content of Option Prices Regarding Future Stock Return Serial Correlation by Scott Murray. Download full books in PDF and EPUB format.
Author: Scott Murray Publisher: ISBN: Category : Languages : en Pages : 61
Book Description
I investigate the relation between option prices and daily stock return serial correlation. I demonstrate that the variance ratio, calculated as the ratio of realized to implied stock return variance, has both a contemporaneous and predictive relation with stock return serial correlation. The ability of the variance ratio to predict future stock return serial correlation gives rise to a daily trading strategy that implements reversal trading on stocks predicted to exhibit large negative serial correlation and momentum trading on stocks with high predicted serial correlation. The trading strategy generates risk-adjusted returns in excess of 6.5% per year.
Author: Scott Murray Publisher: ISBN: Category : Languages : en Pages : 61
Book Description
I investigate the relation between option prices and daily stock return serial correlation. I demonstrate that the variance ratio, calculated as the ratio of realized to implied stock return variance, has both a contemporaneous and predictive relation with stock return serial correlation. The ability of the variance ratio to predict future stock return serial correlation gives rise to a daily trading strategy that implements reversal trading on stocks predicted to exhibit large negative serial correlation and momentum trading on stocks with high predicted serial correlation. The trading strategy generates risk-adjusted returns in excess of 6.5% per year.
Author: Benjamin M. Blau Publisher: ISBN: Category : Languages : en Pages : 29
Book Description
A broad stream of research shows that information flows into underlying stock prices through the options market. For instance, prior research shows that both the Put-Call Ratio (P/C) and the Option-to-Stock Volume Ratio (O/S) predict negative future stock returns. In this paper, we compare the level of information contained in these two commonly used option volume ratios. Our comparison of the return predictability contained in these ratios yields some new results. First, we find that P/C ratios contain more predictability about future stock returns at the daily level than O/S ratios. Second, in contrast to our first set of results, O/S ratios contain more predictability about future returns at the weekly and monthly levels than P/C ratios. In fact, our tests show that while P/C ratios contain predictability about future daily returns and, to some extent, future weekly returns, the return predictability in P/C ratios is fleeting. O/S ratios, on the other hand, significantly predict negative returns at both the weekly and monthly levels, respectively.
Author: Cliff Moll Publisher: ISBN: Category : Languages : en Pages : 114
Book Description
ABSTRACT: In Chapter 2, we use a sample of firms with actively traded single stock futures (SSF) to examine the information content of implied risk premiums embedded in SSF and option prices for future stock and portfolio returns. We believe this to be the first comprehensive study relating embedded risk premiums in cost-of-carry and put-call parity deviations to future stock returns. In addition, we test the possibility of a maturity dependent relation between the embedded risk premia and future returns. Overall, our results indicate that investors cannot profit from perceived mispricings in the SSF and option markets. The absence of a consistent relation between the implied risk premia and future returns implies that SSF and option markets are efficient in that any perceived mispricings in the SSF or option markets cannot be used to forecast future equity returns.
Author: Stephen J. Taylor Publisher: ISBN: Category : Languages : en Pages : 64
Book Description
The volatility information content of stock options for individual firms is measured using option prices for 149 U.S. firms during the period from January 1996 to December 1999. Volatility forecasts defined by historical stock returns, at-the-money (ATM) implied volatilities and model-free (MF) volatility expectations are compared for each firm. The recently developed model-free volatility expectation incorporates information across all strike prices, and it does not require the specification of an option pricing model.Our analysis of ARCH models shows that, for one-day-ahead estimation, historical estimates of conditional variances outperform both the ATM and the MF volatility estimates extracted from option prices for more than one-third of the firms. This result contrasts with the consensus about the informational efficiency of options written on stock indices; several recent studies find that option prices are more informative than daily stock returns when estimating and predicting index volatility. However, for the firms with the most actively traded options, we do find that the option forecasts are nearly always more informative than historical stock returns. When the prediction horizon extends until the expiry date of the options, our regression results show that the option forecasts are more informative than forecasts defined by historical returns for a substantial majority (86%) of the firms. Although the model-free (MF) volatility expectation is theoretically more appealing than alternative volatility estimates and has been demonstrated to be the most accurate predictor of realized volatility by Jiang and Tian (2005) for the Samp;P 500 index, the results for our firms show that the MF expectation only outperforms both the ATM implied volatility and the historical volatility for about one-third of the firms. The firms for which the MF expectation is best are not associated with a relatively high level of trading in away-from-the-money options.
Author: Robert A. Jarrow Publisher: ISBN: Category : Derivative securities Languages : en Pages : 472
Book Description
Written by a number of authors, this text is aimed at market practitioners and applies the latest stochastic volatility research findings to the analysis of stock prices. It includes commentary and analysis based on real-life situations.
Author: Ms.Sonali Jain-Chandra Publisher: International Monetary Fund ISBN: 1475525826 Category : Business & Economics Languages : en Pages : 19
Book Description
The effectiveness of the monetary policy transmission mechanism in open economies could be impaired if interest rates are driven primarily by global factors, especially during periods of large capital inflows. The main objective of this paper is to assess whether this is true for emerging Asia’s economies. Using a dynamic factor model and a structural vector auto-regression model, we show that long-term interest rates in Asia are indeed predominantly driven by global factors. However, monetary policy transmission mechanism remains effective in the region, as it operates predominantly through short-term interest rates. Nevertheless, the monetary transmission mechanism, though effective, is somewhat weaker in Asia during the periods of surges in capital inflows.
Author: Andrew Ang Publisher: Now Publishers Inc ISBN: 1601984685 Category : Business & Economics Languages : en Pages : 99
Book Description
The Efficient Market Hypothesis (EMH) asserts that, at all times, the price of a security reflects all available information about its fundamental value. The implication of the EMH for investors is that, to the extent that speculative trading is costly, speculation must be a loser's game. Hence, under the EMH, a passive strategy is bound eventually to beat a strategy that uses active management, where active management is characterized as trading that seeks to exploit mispriced assets relative to a risk-adjusted benchmark. The EMH has been refined over the past several decades to reflect the realism of the marketplace, including costly information, transactions costs, financing, agency costs, and other real-world frictions. The most recent expressions of the EMH thus allow a role for arbitrageurs in the market who may profit from their comparative advantages. These advantages may include specialized knowledge, lower trading costs, low management fees or agency costs, and a financing structure that allows the arbitrageur to undertake trades with long verification periods. The actions of these arbitrageurs cause liquid securities markets to be generally fairly efficient with respect to information, despite some notable anomalies.
Author: Scott Murray
Author: Scott Murray
Author: Benjamin M. Blau
Author: Cliff Moll
Author: Stephen J. Taylor
Author: Robert A. Jarrow
Author: Shigenori Shiratsuka
Author: Vladimir Kuzin
Author: 
Author: Ms.Sonali Jain-Chandra
Author: Andrew Ang