Abstract

http://ssrn.com/abstract=1535123
 
 

References (53)



 


 



The Efficiency of the Buy-Write Strategy: Evidence from Australia


Tafadzwa Mugwagwa


RMIT University - School of Economics, Finance and Marketing

Vikash Ramiah


RMIT University - School of Economics, Finance and Marketing; Financial Research Network (FIRN)

Tony Naughton (Deceased)


RMIT University - School of Economics, Finance and Marketing; Financial Research Network (FIRN)

January 11, 2010


Abstract:     
We examine the performance of the buy-write option strategy (BWS) on the Australian Stock Exchange and analyse whether such an investment opportunity violates the efficient market hypothesis on the basis of its risk and returns. This study investigates the relationship between buy-write portfolios returns and past trading volume and other fundamental financial factors including dividend yield, firm size, book to market ratio, earnings per share (EPS), price earnings ratio and value stocks within these portfolios. We also test the profitability of the buy-write strategy during bull and bear markets. Consistent with the literature, it is observed that BWS offers superior risk adjusted returns for low levels of out-of-moneyness and contrary evidence is observed for deeper out-of-money portfolios. Consistent with a preference for options with a maturity of around three months in Australia, this research shows that quarterly rebalancing periods offer better returns for the BWS.

Keywords: Buy-Write Strategy, Option, Equity, Portfolio Performance, Efficient Market, Market Fundamentals, Market Conditions

JEL Classification: G11, G12, G14, G24, G32

working papers series





Not Available For Download

Date posted: January 12, 2010 ; Last revised: August 29, 2012

Suggested Citation

Mugwagwa, Tafadzwa and Ramiah, Vikash and Naughton (Deceased), Tony, The Efficiency of the Buy-Write Strategy: Evidence from Australia (January 11, 2010). Available at SSRN: http://ssrn.com/abstract=1535123 or http://dx.doi.org/10.2139/ssrn.1535123

Contact Information

Tafadzwa Mugwagwa
RMIT University - School of Economics, Finance and Marketing ( email )
Business
Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia
Vikash Ramiah (Contact Author)
RMIT University - School of Economics, Finance and Marketing ( email )
Business
Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Tony Naughton (Deceased)
RMIT University - School of Economics, Finance and Marketing ( email )
Business
Level 12, 239 Bourke Street
Melbourne, Victoria 3000
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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