Leveraged ETFs and market makers who are active in option markets must ad-just imbalances arising from market movements. Establishing delta-neutrality may cause either return momentum or reversal depending on the sign and size of the imbalance vis-a-vis market prevailing liquidity. We find that...

We propose a statistical model of differences in beliefs in which heterogeneous investors are represented as different machine learning model specifications. Each investor forms return forecasts from their own specific model using data inputs that are available to all investors. We measure...

Drawing upon more than 12 million observations over the period from 1996 to 2020, we find that allowing for nonlinearities significantly increases the out-of-sample performance of option and stock characteristics in predicting future option returns. Besides statistical significance, the...

We build on a growing literature that studies the impact of market frictions on the dynamics of stock markets, such as momentum, price spirals, excess volatility, and investigate the potential feedback effects of delta-hedging in derivative markets on the underlying market. We document a link...