Journal of Financial Economics Vol. 106 No. 2 2012
The option to stock volume ratio and future returns
Abstract
We examine the information content of option and equity volumes when trade direction is unobserved. In a multimarket asymmetric information model, equity short-sale costs result in a negative relation between relative option volume and future firm value. In our empirical tests, firms in the lowest decile of the option to stock volume ratio (O/S) outperform the highest decile by 0.34% per week (19.3% annualized). Our model and empirics both indicate that O/S is a stronger signal when short-sale costs are high or option leverage is low. O/S also predicts future firm-specific earnings news, consistent with O/S reflecting private information.
- DOI
- 10.1016/j.jfineco.2012.05.008
- Volume
- 106
- Issue
- 2
- Pages
- 262-286
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref