Journal of Financial and Quantitative Analysis 2026
Betting Against the Crowd: Option Trading and Market Risk Premium
open access
Abstract
We study how equity option trading affects the market risk premium. We find that a measure of aggregate call order imbalance (ACIB), defined as the cross-sectional average of the difference between open-buy and open-sell volume, negatively forecasts future stock market returns significantly from days to months. Moreover, ACIB represents an option-based investor sentiment measure that accounts for excess option buying or selling, and is highly correlated with the stock investor sentiment. Our findings shed new insights on the distinctions for call and put option trading, index and equity option trading, and cross-sectional and time-series predictions.
- DOI
- 10.1017/s0022109026102889
- Pages
- 1-49
- Language
- en
- Sources
- crossref openalex