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http://ssrn.com/abstract=1974753
 
 

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Fundamental Analysis and Option Returns


Theodore H. Goodman


Purdue University - Department of Accounting

Monica Neamtiu


University of Arizona - Eller College of Management

Frank Zhang


Yale School of Management

January 3, 2013


Abstract:     
This paper investigates whether fundamental accounting information is appropriately priced in the options market. We find that fundamental accounting signals exhibit incremental predictive power with respect to future option returns above and beyond what is captured by implied and historical stock volatility, suggesting that the options market does not fully incorporate fundamental information into option prices. Transaction costs substantially reduce the overall profitability of hedge strategies that exploit the information in these fundamental accounting signals, but the strategies still earn economically and statistically significant returns for options with low transaction costs.

Number of Pages in PDF File: 47

Keywords: Fundamental analysis, return, volatility, accounting signals

JEL Classification: G11, G12, G13, G14, M41

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Date posted: December 21, 2011 ; Last revised: January 3, 2013

Suggested Citation

Goodman, Theodore H. and Neamtiu, Monica and Zhang, Frank, Fundamental Analysis and Option Returns (January 3, 2013). Available at SSRN: http://ssrn.com/abstract=1974753 or http://dx.doi.org/10.2139/ssrn.1974753

Contact Information

Theodore H. Goodman
Purdue University - Department of Accounting ( email )
Krannert School of Management
West Lafayette, IN 47907-1310
United States
Monica Neamtiu
University of Arizona - Eller College of Management ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
Frank Zhang (Contact Author)
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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