Social and Behavioral Sciences Commons^™

Explaining Excess Stock Return Through Options Market Sentiment, Michael Gough

Honors Projects in Finance

Option markets are a fascinating area of study and in recent years research has indicated that information obtained from the options market can be used to explain price returns in the underlying stock market. Building on existing asset pricing models such as the Fama-French Three Factor, Carhart Four Factor, and Fama-French Five Factor Models, this research tests if the put to call ratio can be used as an additional factor in explaining excess returns. Ordinary least squares models are run on all Dow Jones 30 stocks using more than ten years of data and the model results are compared. The …