Open Access. Powered by Scholars. Published by Universities.®
Articles 1 - 2 of 2
Full-Text Articles in Business
Center Of Volume Mass: Does Options Trading Predict Stock Returns?, Gennaro Bernile, Fei Gao, Jianfeng Hu
Center Of Volume Mass: Does Options Trading Predict Stock Returns?, Gennaro Bernile, Fei Gao, Jianfeng Hu
Research Collection Lee Kong Chian School Of Business
We examine whether the distribution of trades along the set of strike prices of option contracts on the same stock contains information about underlying price discovery. We show that option traders' demand for delta exposure drives the volume-weighted average strike-spot price ratio (VWKS). In turn, we find that VWKS predicts underlying returns and anticipates the flow of fundamental information about the stock. The return predictability is greater but not limited to stocks with higher information asymmetries and arbitrage costs, and becomes stronger ahead of value relevant news. Overall, options trading appears to play an important informational role for underlying markets.
The World Predictive Power Of U.S. Equity Market Skewness Risk, Jian Chen, Fuwei Jiang, Shuyu Xue, Jiaquan Yao
The World Predictive Power Of U.S. Equity Market Skewness Risk, Jian Chen, Fuwei Jiang, Shuyu Xue, Jiaquan Yao
Research Collection Lee Kong Chian School Of Business
This study investigates the cross-country impact of U.S. equity market skewness risk. We find that a large decrease in the U.S. market skewness significantly predicts higher future returns on international equity markets. The predictability remains significant after controlling for a set of U.S. and local forecasting variables. Furthermore, we find strong predictability in- an out-of-sample setting and the predictability delivers a large economic value. The U.S. market skewness also forecasts U.S. economic recessions and international market conditions, consistent with the international three-moment capital asset pricing model (three-moment CAPM) and the intertemporal capital asset pricing model (ICAPM).