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The Weekend Effect in Equity Option Returns


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)

September 22, 2010

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

Abstract:     
We find that returns on options on individual equities display markedly lower returns over weekends (Friday close to Monday close) relative to any other day of the week. These patterns are observed both in unhedged and delta-hedged positions, indicating that the effect is not the result of a weekend effect in the underlying securities. We find even stronger weekend effects in implied volatilities, but only after an adjustment to quote implied volatilities in terms of trading days rather than calendar days. Our results hold for puts and calls over a wide range of maturities and strike prices, for both equally weighted portfolios and for portfolios weighted by the market value of open interest, and also for samples that include only the most liquid options in the market. We find no evidence of a weekly seasonal in bid-ask spreads, trading volume, or open interest that could drive the effect. We also find little evidence that weekend returns are driven by higher levels of risk over the weekend. The effect is particularly strong over expiration weekends, and it is also present to a lesser degree over mid-week holidays. Finally, the effect is stronger when the TED spread and market volatility are high, which we interpret as providing support for a limits to arbitrage explanation for the persistence of the effect.

Number of Pages in PDF File: 58

Keywords: weekend effect, equity options

JEL Classification: G12, G13, G14

working papers series





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Date posted: March 22, 2009 ; Last revised: September 17, 2012

Suggested Citation

Jones, Christopher S. and Shemesh, Joshua, The Weekend Effect in Equity Option Returns (September 22, 2010). 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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