Option Trading Activity, News Releases, and Stock Return Predictability-Reference-Cited by-同舟云学术

Option Trading Activity, News Releases, and Stock Return Predictability

Published:2022-09-09 Issue: Volume: Page:
ISSN:0025-1909
Container-title:Management Science
language:en
Short-container-title:Management Science

Author:

Weinbaum David¹^ORCID,Fodor Andrew²,Muravyev Dmitriy³,Cremers Martijn⁴^ORCID

Affiliation:

1. Whitman School of Management, Syracuse University, Syracuse, New York 13244;

2. College of Business, Ohio University, Athens, Ohio 45701;

3. Broad College of Business, Michigan State University, East Lansing, Michigan 48824;

4. Mendoza College of Business, University of Notre Dame, Notre Dame, Indiana 46556

Abstract

We examine which categories of option trading volume carry information about future stock prices around corporate news announcements. We predict and find that purchases of options are informative on news days and ahead of unscheduled events but not before scheduled events, and sales of options predict returns only ahead of scheduled news releases. Therefore, although the arrival of new information is an important reason why option volume predicts stock returns, this relation depends on whether the information is scheduled or unscheduled because only the former affects volatility and thus option prices. We also study how trading costs and margin costs affect ex post profitability around news. This paper was accepted by Karl Diether, finance.

Publisher

Institute for Operations Research and the Management Sciences (INFORMS)

Subject

Management Science and Operations Research,Strategy and Management

Link

http://pubsonline.informs.org/doi/pdf/10.1287/mnsc.2022.4543

Reference43 articles.

1. The Joint Cross Section of Stocks and Options

2. Informed Options Trading Prior to Takeover Announcements: Insider Trading?

3. Asymmetric Information and Options

4. Volatility Spreads and Expected Stock Returns

5. The earnings announcement premium around the globe

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