We present a new finding that the return autocorrelation of underlying stock is an important determinant of expected equity option returns. Using an extended Black-Scholes model incorporating the presence of stock return autocorrelation, we show that expected returns of both call and put options...

Jumps and diffusive changes in stock prices are different ways in which information is reflected in the prices. We use nonparametric methods to decompose returns on individual stocks into jumps and diffusive components. Contrary to the conventional assumption that jump intensity is positively...

Recent studies find that transactions volume and volatility spread of exchange-traded single-stock options predict the underlying stock’s future returns. Most of the firms with exchange-traded options have large market capitalization and are actively traded. It is a puzzle why it takes days...

Aggregate implied volatility spread (IVS), defined as the cross-sectional average difference in the implied volatilities of at-the-money call and put equity options, is significantly and positively related to future stock market returns at daily, weekly, monthly, to semiannual horizons. This...

We find that the FOMC-announcement-day return premium earned by a firm is positively related to the increase in its ex ante, option-implied skewness prior to the announcement. This finding is consistent with: (1) the existence of an announcement-day Fed put that is partially anticipated by the...