Index option trading activity and market returns

Chordia, Tarun, Kurov, Alexander, Muravyev, Dmitriy and Subrahmanyam, Avanidhar 2021, Index option trading activity and market returns, Management science, vol. 67, no. 3, pp. 1758-1778, doi: 10.1287/mnsc.2019.3529.

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Title Index option trading activity and market returns
Author(s) Chordia, Tarun
Kurov, Alexander
Muravyev, Dmitriy
Subrahmanyam, Avanidhar
Journal name Management science
Volume number 67
Issue number 3
Start page 1758
End page 1778
Total pages 21
Publisher Institute for Operations Research and the Management Sciences
Place of publication [Providence, R.I.]
Publication date 2021-03
ISSN 0025-1909
1526-5501
Keyword(s) index options
order flow
information
market efficiency
Summary Do order flows in index derivatives play an informational role? Weekly index put order flow on the International Securities Exchange positively and robustly predicts weekly S&P 500 index returns. This result obtains mainly for net put buying and is stronger in high VIX periods and in periods following macroeconomic announcements. We explore rationales for our findings, which include investor sentiment, the notion that market makers trade on information in options markets, and option-based risk protection strategies used by retail investors. The last explanation accords best with our analysis. This paper was accepted by Tyler Shumway, finance.
Language eng
DOI 10.1287/mnsc.2019.3529
Indigenous content off
Field of Research 08 Information and Computing Sciences
15 Commerce, Management, Tourism and Services
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Persistent URL http://hdl.handle.net/10536/DRO/DU:30149327

Document type: Journal Article
Collections: Faculty of Business and Law
Department of Finance
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