By employing the modified net buying pressure as a measure of informed option trading, this study tested whether option trading around quarterly earnings announcements is either directionally motivated and/or volatility motivated. We found evidence that is consistent with the idea that option...

This paper presents a tractable dynamic equilibrium model of stock return extrapolation in the presence of stochastic volatility. In the model, consistent with survey evidence, following positive (negative) stock returns, investors expect future returns to be higher (lower) but also less (more)...

Divergence in investor beliefs is an important driver of the negative relation between option trading volume and future stock returns. We find a strong negative relation between disagreement-based option trades and future stock returns, and this relation is markedly amplified when the underlying...

Prior literature finds information is reflected in option markets before stock markets using daily and weekly trading volume, but evidence is mixed at the intraday level. Using novel intraday signed option volume data, we develop a composite option trading score (OTS) and document its stock...

The question of whether and to what extent option trading impacts underlying stock prices has been of interest since options began exchange-based trading in 1973. Recent research presents evidence of an informational channel through which option trading impacts stock prices by showing that...

The option implied volatility spread and skew predict stock returns. These variables also reflect the expected cost of borrowing stock to sell short. The stock borrowing fee implied from options prices predicts changes in quoted borrowing fees and stock returns; however, the volatility spread...

Equity option markets exhibit intense trading activity. We use the variability of option implied volatility spread as a proxy for the impounding of new information, and changes in the interpretation of existing information, into option prices. Over the 2006 – 2016 period, we find that the...

Theories are inconclusive about the various impacts of the introduction of basket securities on the underlying stocks. We explore those effects for the first time around the launch of options on exchange traded funds (ETF), employing the listing of the options on the S&P 500 Depository Receipts...

We examine whether the option market leads the stock market with respect to positive in addition to negative price discovery. We document that out-of-the-money (OTM) option prices, which determine the Risk-Neutral Skewness (RNS) of the underlying stock return's distribution, can embed positive...

This is the first paper to calculate and analyze option-implied dividends for individual US companies, while accounting for the early exercise premium. These firm-level implied dividends show substantial variation relative to actual dividends over time as well as in the cross-section. Implied...