Option Prices Leading Equity Prices: Do Option Traders Have an Information Advantage?

Jin, Wen; Livnat, Joshua; Zhang, Yuan

doi:10.2139/ssrn.1737796

Cited by 51 publications

(75 citation statements)

References 34 publications

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“…Thus, we contend that this specific instance of informed trading highlights option traders' superior ability to process public information. We then run similar regressions to Jin et al (2012) and Chan et al (2015), where we examine whether the implied volatility spread and skew predict short-run announcement returns and longer-term abnormal returns. We find little evidence that these option measures can predict the future returns of splitters.…”

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confidence: 99%

“…The prior research on informed trading in options around corporate events focuses on the predictability of option measures and, in particular, the predictability of future returns (e.g., Jin et al (2012), Chan et al (2015), and Hayunga and Lung (2014)). We are the first to examine the expectations of option traders on both return and volatility changes due to an unscheduled corporate event.…”

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confidence: 99%

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Informed Trading around Stock Split Announcements: Evidence from the Option Market

Gharghori¹,

Maberly²,

Nguyen³

2017

J. Financ. Quant. Anal.

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Prior research shows that splitting firms earn positive abnormal returns and that they experience an increase in stock return volatility. By examining option-implied volatility, we assess option traders' perceptions on return and volatility changes arising from stock splits. We find that they do expect higher volatility following splits. There is only weak evidence, though, of option traders anticipating an abnormal increase in stock prices. We also show that our option measures can predict both stock volatility levels and changes after the announcement. However, there is little evidence that they can predict the returns of splitting firms.

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confidence: 99%

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confidence: 99%

Informed Trading around Stock Split Announcements: Evidence from the Option Market

Gharghori¹,

Maberly²,

Nguyen³

2017

J. Financ. Quant. Anal.

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“…Chakravarty et al, 2004;Chen et al, 2005;Jin et al, 2012). Derivative markets also play a leading role in the price discovery process (e.g.…”

Section: Economic and Market Impact Of Sovereign Ratingsmentioning

confidence: 99%

“…Given the leading role of derivatives markets (Blanco et al, 2005;Acharya and Johnson, 2007;Jin, et al, 2012;Avino et al, 2013), we expect some evidence that the option market leads rating actions. Nonetheless, the lead-lag relationship between the market and ratings assigned by different CRAs could be different since the timeliness and policies of each CRA are not necessarily the same.…”

Section: Hypothesis Iii: Causality Between Sovereign Rating and IVmentioning

confidence: 99%

“…This paper investigates the interaction between sovereign rating news and the equity index option market. This market is typically inhabited by institutional informed traders (see Chakravarty et al, 2004;Chen et al, 2005;Jin et al, 2012). Much literature identifies that the derivative markets play a leading role in the price discovery process (e.g.…”

Section: Introductionmentioning

confidence: 99%

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Sovereign rating actions and the implied volatility of stock index options

Tran

Alsakka

Gwilym

2014

International Review of Financial Analysis

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This paper examines the interaction between the equity index option market and sovereign credit ratings. S&P and Moody's signals exhibit strong impact on option-implied volatility while Fitch's influence is less significant. Moody's downgrades reduce the market uncertainty over the rated countries' equity markets. Strong causal relationships are found between movements in the option-implied volatility and all credit signals released by S&P and Fitch, but only actual rating changes by Moody's, implying differences in rating agencies' policies. The presence of additional ratings tends to reduce market uncertainty. The findings highlight the importance of rating information in the price discovery process and offer policy implications. JEL classification: G14; G15; G24

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Option Prices Leading Equity Prices: Do Option Traders Have an Information Advantage?

Cited by 51 publications

References 34 publications

Informed Trading around Stock Split Announcements: Evidence from the Option Market

Informed Trading around Stock Split Announcements: Evidence from the Option Market

Sovereign rating actions and the implied volatility of stock index options

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