Informed trading of out-of-the-money options and market efficiency
- Title
- Informed trading of out-of-the-money options and market efficiency
- Author
- 강창모
- Issue Date
- 2022-06
- Publisher
- WILEY
- Citation
- JOURNAL OF FINANCIAL RESEARCH, v. 45, NO. 2, Page. 247-279
- Abstract
- We examine the stock return predictability of out-of-the-money (OTM) put-to-call trading volume ratio (OTMPC). Our numerical analysis predicts that in the US equity option market, informed investors rarely write OTM options because the leverage effect is not sufficient to compensate for transaction costs. OTMPC thus captures the informed investors' OTM put purchase volume relative to their OTM call purchase volume. After controlling for existing empirical proxies for informed option trading, we find that OTMPC predicts future stock returns and corporate news. The return predictability offers implementable stock portfolio strategies. Our findings suggest that market inefficiency can emerge from uninformed investors' limited knowledge about how transaction costs influence the trading strategies of informed investors.
- URI
- https://onlinelibrary.wiley.com/doi/10.1111/jfir.12274https://repository.hanyang.ac.kr/handle/20.500.11754/176587
- ISSN
- 0270-2592;1475-6803
- DOI
- 10.1111/jfir.12274
- Appears in Collections:
- COLLEGE OF BUSINESS[S](경영대학) > FINANCIAL MANAGEMENT(파이낸스경영학과) > Articles
- Files in This Item:
There are no files associated with this item.
- Export
- RIS (EndNote)
- XLS (Excel)
- XML