We derive a model-free option-based formula to estimate the contribution of market frictions to expected returns (CFER) within an asset pricing setting. We estimate CFER for the U.S. optionable stocks. We document that CFER is sizable, it predicts stock returns and it subsumes the effect of...

Reliable excess returns from active portfolio management derive from informed trading. We investigate the information content of informed trading in the equity market and the options market. We find that informed equity trading and options trading are positively correlated in the time-series,...

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)...

This paper develops a new method to calculate hedged returns on model-free “equity VIX” option portfolios. Our returns are highly correlated with realized variance minus implied variance. Compared to CBOE’s VIX formula, our formulas are more accurate for both simulated and actual prices,...

This paper investigates the performance of option investments across different stocks by computing monthly returns on at-the-money straddles on individual equities. It finds that options with high historical returns continue to significantly outperform options with low historical returns over...

Using the next-day and next-week returns of stocks in the Korean market, we examine the association of option volume ratios - i.e. the option-to-stock (O/S) ratio, which is the total volume of put options and call options scaled by total underlying equity volume, and the put-call (P/C) ratio,...

Using a novel equity lending dataset, this paper is the first to show that expected returns strongly and negatively predict future equity lending fees. In comparing two expected return measures, I find that a rational expected return has stronger predictive power of future short selling activity...

The financial market interest several researchers, especially in the domain of assessment of the financial assets and their performances. The previous research identified several anomalies of the market, as size, Monday, January, PER effects, etc. putting in question the notion of market...

I build a price-ratio model based on the Campbell and Shiller (1988) decomposition to test which components of investor expectations best explains cross-sectional price differences. I evaluate the in- and out-of-sample performance of my model, which uses a higher-order expansion with an added...

The present study explores the effect of the gambler’s fallacy on stock trading volumes. I hypothesize that if a stock’s price rises (falls) during a number of consecutive trading days, then the gambler’s fallacy may cause at least some of the investors to expect that the stock’s price...