Informed Trading in the Options Market and Stock Return Predictability

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Previous research highlights the importance of two distinct types of informed trading in the options market: trading on the price direction of underlying stocks, and trading on their uncertainty. Surprisingly, however, the studies considering these in a unified framework are scant.This study attempts to fill the gap. We predict that when both directional andvolatility information could motivateoptions trading, the return predictability of options volume hinges onthe shape of the volatility smirk.Consistent with this prediction, we find thatthe negative relationship between options volume and future stock returns is concentrated in stocks exhibiting steep volatility smirks.
Publisher
WILEY
Issue Date
2017-11
Language
English
Article Type
Article
Keywords

IMPLIED VOLATILITY; REALIZED VOLATILITY; INFORMATION-CONTENT; CROSS-SECTION; VOLUME; PRICES; EQUILIBRIUM; RISK

Citation

JOURNAL OF FUTURES MARKETS, v.37, no.11, pp.1053 - 1093

ISSN
0270-7314
DOI
10.1002/fut.21837
URI
http://hdl.handle.net/10203/226696
Appears in Collection
MT-Journal Papers(저널논문)
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