While Merton (1987) proposes that firm value increases with the number of shareholders, relatively few studies have explicitly sought to identify the factors that affect investor participation per se in equity markets. Using a unique dataset that measures the inflow and outflow of equity...

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...