Abstract

http://ssrn.com/abstract=1364721
 
 

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Option Mispricing Around Nontrading Periods


Christopher S. Jones


University of Southern California - Marshall School of Business - Finance and Business Economics Department

Joshua Shemesh


University of Melbourne - Department of Finance; Financial Research Network (FIRN)

January 31, 2016

AFA 2010 Atlanta Meetings Paper
Marshall School of Business Working Paper No. FBE 03-10

Abstract:     
We find that option returns are significantly lower over nontrading periods, the vast majority of which are weekends. Our evidence suggests that nontrading returns cannot be explained by risk, but are rather the result of widespread and highly persistent option mispricing driven by the incorrect treatment of non-smoothness in stock return variance. The size of the effect implies that the broad spectrum of finance research involving option prices should account for nontrading effects and non-smoothness in variance more generally. Our study further suggests how alternative industry practices could improve the efficiency of option markets in a meaningful way.

Number of Pages in PDF File: 57

Keywords: Nontrading, weekend effect, equity options

JEL Classification: G12, G13, G14


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Date posted: March 22, 2009 ; Last revised: April 29, 2016

Suggested Citation

Jones, Christopher S. and Shemesh, Joshua, Option Mispricing Around Nontrading Periods (January 31, 2016). AFA 2010 Atlanta Meetings Paper; Marshall School of Business Working Paper No. FBE 03-10. Available at SSRN: http://ssrn.com/abstract=1364721 or http://dx.doi.org/10.2139/ssrn.1364721

Contact Information

Christopher S. Jones (Contact Author)
University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
Joshua Shemesh
University of Melbourne - Department of Finance ( email )
Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

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