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    Rights statement: This is the author’s version of a work that was accepted for publication in Journal of Banking & Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking & Finance, 94, 2018 DOI: 10.1016/j.jbankfin.2018.07.016

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    Embargo ends: 2/02/20

    Available under license: CC BY-NC-ND: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License

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Differences in options investors’ expectations and the cross-section of stock returns

Research output: Contribution to journalJournal article

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<mark>Journal publication date</mark>09/2018
<mark>Journal</mark>Journal of Banking and Finance
Volume94
Number of pages22
Pages (from-to)315-336
Publication statusPublished
Early online date2/08/18
Original languageEnglish

Abstract

We provide strong evidence that the dispersion of individual stock options trading volume across moneynesses (IDISP) contains valuable information about future stock returns. Stocks with high IDISP consistently underperform those with low IDISP by more than 1% per month. In line with the idea that IDISP reflects dispersion in investors’ beliefs, we find that the negative IDISP-return relationship is particularly pronounced around earnings announcements, in high sentiment periods and among stocks that exhibit relatively high short-selling impediments. Moreover, the IDISP effect is highly persistent and robustly distinct from the effects of a large array of previously documented cross-sectional return predictors.

Bibliographic note

This is the author’s version of a work that was accepted for publication in Journal of Banking & Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking & Finance, 94, 2018 DOI: 10.1016/j.jbankfin.2018.07.016