Trading in the Options Market around Financial Analysts’ Consensus Revisions

2014 ◽  
Vol 49 (3) ◽  
pp. 725-747 ◽  
Author(s):  
Darren K. Hayunga ◽  
Peter P. Lung
Keyword(s):  
Stock Market ◽  
Transaction Costs ◽  
Trading Volume ◽  
Financial Analysts ◽  
Options Market ◽  
Sample Analysis ◽  
Consensus Recommendation ◽  
Out Of Sample ◽  
Correct Direction ◽  
Options Trading

AbstractThis article investigates the options market around a revision in the financial analysts’ consensus recommendation. The results demonstrate that options investors trade in the correct direction of the upcoming revision approximately 3 days prior to the announcement. We find this behavior in option-implied prices, implied volatilities, and options trading volume. Tests confirm that the options market leads the stock market before the financial analysts’ revision. Moreover, using all firms with outstanding options, an out-of-sample analysis produces a profitable zero-cost trading strategy net of transaction costs based on the relative valuations between the synthetic and the underlying equity security.

scholarly journals Is Abnormally Large Volume a Clue?

2016 ◽  
Vol 8 (9) ◽  
pp. 226
Author(s):  
Tsung-Hsun Lu ◽  
Jun-De Lee
Keyword(s):  
Stock Market ◽  
Large Volume ◽  
Stock Prices ◽  
Stock Price ◽  
Trading Volume ◽  
Sensitive Analysis ◽  
Support Level ◽  
Out Of Sample ◽  
Sample Test ◽  
Abnormal Trading Volume

This paper investigates whether abnormal trading volume provides information about future movements in stock prices. Utilizing data from the Taiwan 50 Index from October 29, 2002 to December 31, 2013, the researchers employ trading volume rather than stock price to test the principles of resistance and support level employed by technical analysis. The empirical results suggest that abnormal trading volume provides profitable information for investors in the Taiwan stock market. An out-of-sample test and a sensitive analysis are conducted for the robustness of the results.

scholarly journals Paper Profits From Value, Size and Momentum: Evidence from the Polish Market

e-Finanse ◽  
2015 ◽  
Vol 11 (3) ◽  
pp. 58-69 ◽  
Author(s):  
Adam Zaremba ◽  
Przemysław Konieczka
Keyword(s):  
Stock Market ◽  
Transaction Costs ◽  
Liquidity Constraints ◽  
Academic Knowledge ◽  
Momentum Profits ◽  
Out Of Sample

Abstract In this paper we investigate sources and characteristics of value, size and momentum profits on the Polish stock market. The research aims to broaden the academic knowledge in a few ways. First, we deliver fresh out-of-sample evidence on value, momentum, and size premiums. Second, we analyze the interdependences among the factors. Third, we investigate whether the factor premiums are present after accounting for liquidity constraints. Fourth, we check whether the factor premiums are robust to transaction costs. Our research is based on all the stocks listed on the WSE in years 2001-2013. We find, that the value, momentum, and size premiums are to some extent present on the Polish market. Furthermore, they strengthen each other, but they disappear after accounting for transaction costs and liquidity.

scholarly journals Option volume and stock returns: evidence from single stock options on the Korea Exchange

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mincheol Woo ◽  
Meong Ae Kim
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Stock Price ◽  
Stock Options ◽  
Trading Volume ◽  
Volume Ratio ◽  
Options Market ◽  
The Future ◽  
Informed Traders ◽  
Option Volume

Informed traders may prefer the options market to the stock market for reasons including the leverage effect, transaction costs, restrictions on short sale. Many studies try to predict future returns of stocks using informed traders' behavior in the options market. In this study, we examine whether the trading volume ratios of single stock options have the predictive power for future returns of the underlying stock. By analyzing the stock price responses to the “preliminary announcement of performance” of 36 underlying stocks on the Korea Exchange from November 2014 to March 2021 and the trading volume of options written on those stocks, we investigate the relation between the option ratios, which are the call option volume to put option volume ratio (C/P ratio) and the option volume to stock volume ratio (O/S ratio), and the future returns of the underlying stock. We also examine which ratio is better in predicting the future returns. The authors found that both option ratios showed the statistically significant predictability about future returns of the underlying stock and that the return predictability of the O/S ratio is more robust than that of the C/P ratio. This study shows that indicators generated in the options market can be used to predict future underlying stock returns. Further, the findings of this study contributed to a dearth of literature pertaining to single stock options. The results suggest that the single stock options market is efficient and influences the price discovery in the stock market.

The determinants of the COVID-19 related stock price overreaction and volatility

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yiyang Val Sun ◽  
Bin Liu ◽  
Tina Prodromou
Keyword(s):  
Corporate Governance ◽  
Stock Market ◽  
Stock Price ◽  
Trading Volume ◽  
Cross Sectional ◽  
Content Type ◽  
Out Of Sample ◽  
Price Reactions ◽  
Stock Price Reactions ◽  
Practical Implications

Purpose This study aims to investigate which stock characteristics and corporate governance variables affect stock price overreaction and volatility during the COVID-19 pandemic period. Design/methodology/approach A set of stock characteristics and corporate governance variables which may affect price overreaction and volatility were identified following a review of the literature. A dummy variable was created for the cross-sectional analysis to take into account the unique sector effect in the consumer staples sector. Out of sample analysis was conducted to confirm the robustness of the main results. Findings The empirical results consistently show that size, dividend and trading volume determine the stock price reactions when the market is in turmoil during the pandemic period. Board size and average board tenure exhibit moderate effects on reducing the stock price reactions, but the effects become insignificant while controlling for the firm characteristics in the regressions. The results remain robust when tested out of the sample. More interestingly, a consumer staples sector effect is identified and tested. The test results show that the consumer staples sector effect mitigates the stock price reactions. Practical implications The results have practical implications for investors who aim to manage desired levels of risk in their portfolios during the pandemic. The results also provide meaningful insights to stock market speculators regarding pandemic-related speculation opportunities. Originality/value This study makes a meaningful connection between the irrational stock market anomalies and the COVID-19 pandemic.

scholarly journals Information Asymmetry, Ownership Structure and Cost of Equity Capital: The Formation for Open Innovation

2021 ◽  
Vol 7 (1) ◽  
pp. 48
Author(s):  
Ade Imam Muslim ◽  
Doddy Setiawan
Keyword(s):  
Stock Market ◽  
Information Asymmetry ◽  
Ownership Structure ◽  
Trading Volume ◽  
Foreign Ownership ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Ownership Structures ◽  
The Cost

Our study aims to investigate how information asymmetry and ownership structure affect cost of equity capital. For that purpose, we collected 246 issuers over 4 years for a total of 984 observations. By using panel data processing, we found that the information asymmetry we proxied through Price non-Synchronization and trading volume had an effect on the cost of equity capital. Our results also confirmed both Agency Theory and Pecking Order Theory. Both theories are in line with the conditions of the stock market in Indonesia. In addition, we found that institutional and foreign ownership structures also had an effect on the cost of equity capital. Furthermore, our results also confirmed Interest Alignment Theory and Entrenchment Theory. Our research is expected to contribute to the debate on the existence of information asymmetry and ownership structures in relation to the cost of equity capital. We also hope that it will be a valuable input for investors in considering their investment. Moreover, from the results of this study, investors can also consider foreign ownership or institutional ownership in determining their investment. In addition, stock market regulators in Indonesia can develop approaches to minimize information asymmetry and encourage foreign investors to invest in Indonesia.

Real-Time Profitability of Published Anomalies: An Out-of-Sample Test

2013 ◽  
Vol 03 (03n04) ◽  
pp. 1350016 ◽  
Author(s):  
Jing-Zhi Huang ◽  
Zhijian Huang
Keyword(s):  
Asset Pricing ◽  
Transaction Costs ◽  
Real Time ◽  
Empirical Evidence ◽  
Equity Market ◽  
Data Snooping ◽  
Asset Pricing Anomalies ◽  
Pricing Anomalies ◽  
Out Of Sample ◽  
Sample Test

Empirical evidence on the out-of-sample performance of asset-pricing anomalies is mixed so far and arguably is often subject to data-snooping bias. This paper proposes a method that can significantly reduce this bias. Specifically, we consider a long-only strategy that involves only published anomalies and non-forward-looking filters and that each year recursively picks the best past-performer among such anomalies over a given training period. We find that this strategy can outperform the equity market even after transaction costs. Overall, our results suggest that published anomalies persist even after controlling for data-snooping bias.

scholarly journals Relationship between Trading Volume and Asymmetric Volatility in the Korean Stock Market

2012 ◽  
Vol 03 (05) ◽  
pp. 584-589 ◽  
Author(s):  
Ki-Hong Choi ◽  
Zhu-Hua Jiang ◽  
Sang Hoon Kang ◽  
Seong-Min Yoon
Keyword(s):  
Stock Market ◽  
Trading Volume ◽  
Asymmetric Volatility ◽  
Korean Stock Market
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