Journal of Financial Economics Vol. 6 No. 2-3 1978
The information content of option prices and a test of market efficiency
Abstract
The Black-Scholes option pricing model, as generalized for dividend payments by Merton, is used to calculate implied variances of future stock returns. These variances are found to be better predictors of future stock return variances than those obtained from historic stock price data. A trading strategy is developed that exploits the informational content of the implied variances. The trading strategy, contrary to the efficient market hypothesis, produces abnormally high returns.
- DOI
- 10.1016/0304-405x(78)90030-2
- Volume
- 6
- Issue
- 2-3
- Pages
- 213-234
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex