We use cookies to ensure that we give you the best experience on our website. By continuing to browse this repository, you give consent for essential cookies to be used. You can read more about our Privacy and Cookie Policy.

Durham e-Theses
You are in:

Essays on Asset Return Predictability Using Options Market Information

TUNESHEV, RUSLAN,SERGEEVICH (2017) Essays on Asset Return Predictability Using Options Market Information. Doctoral thesis, Durham University.

PDF - Accepted Version


In this dissertation, I study the effects of option-type measures of investors’ beliefs on expected asset returns. The key contribution of the thesis lies in exploiting options trading information to summarize a wide range of traders’ directional beliefs via the measures of investor sentiment and differences in investors’ expectations and showing their superior forecasting power for future asset payoffs. Chapter 1 constructs the proxy for investor sentiment
in the options market, using the volume-weighted average moneyness level, and explores its market-wide predictability. Consistent with the existing literature, I find that option-implied sentiment is a strong in- and out-of-sample predictor of stock market returns, both at short and long investment horizons. Chapter 2 proposes a firm-level measure for differences in expectations among options traders, obtained from the dispersion of equity options trading volume across various moneyness levels, and examines its cross-sectional profitability. In line with the theoretical predictions of Miller (1977), I demonstrate that stocks with high differences in expectations consistently earn lower returns than otherwise similar stocks. Moreover, this underperformance pattern is more pronounced for firms that incur higher
short-sale costs and relatively high arbitrage risk and is robustly distinct from that shown by previously revealed cross-sectional return predictors. Finally, in Chapter 3, I extend the prior analysis and investigate the mechanism and timing of the Miller (1977) hypothesis, using the option-implied measure of belief dispersion. In particular, I document that stocks with high differences in expectations exhibit a clearly pronounced overvaluation in the earnings
pre-announcement period and a more severe subsequent price correction upon the release of new information. Additionally, I show that the differences in expectations among options traders tend to better capture the Miller (1977) predictions, relative to analysts’ forecasts dispersion, for stocks with listed options.

Item Type:Thesis (Doctoral)
Award:Doctor of Philosophy
Keywords:Options Markets, Sentiment, Disagreement, Differences of Opinion, Equity Options Trading Volume, Earnings Announcements
Faculty and Department:Faculty of Social Sciences and Health > Economics, Finance and Business, School of
Thesis Date:2017
Copyright:Copyright of this thesis is held by the author
Deposited On:04 May 2017 11:00

Social bookmarking: del.icio.usConnoteaBibSonomyCiteULikeFacebookTwitter