Abstract

http://ssrn.com/abstract=2005763
 
 

References (36)



 
 

Citations (2)



 


 



The Information Content of Option Demand


Kerstin Kehrle


Independent

Tatjana Xenia Puhan


University of Zurich; Swiss Finance Institute

June 27, 2014

Swiss Finance Institute Research Paper No. 12-43

Abstract:     
This paper combines the concept of market sidedness with excess option demand (changes in open interest) to solve the empirical challenge of separating directional from uninformed trading motives in widely available, unsigned options data. Our measure of options market sidedness persistently predicts the sign and strength of stock returns.

Trading strategies conditional on the measure are highly profitable. For instance, when the measure indicates positive (negative) information, out-of-the-money calls (puts) generate returns of 27% (32%) over roughly four weeks. Risk-adjusted returns of a long-short equity strategy yield more than 2%. An increase in directionally informed demand predicts a decrease in option liquidity and increases in pricing inefficiency.

Number of Pages in PDF File: 59

Keywords: Option Demand, Market Sidedness, Open Interest, Liquidity, Market Microstructure

JEL Classification: D82, G10, G12, G14

working papers series


Download This Paper

Date posted: October 16, 2012 ; Last revised: July 26, 2014

Suggested Citation

Kehrle, Kerstin and Puhan, Tatjana Xenia, The Information Content of Option Demand (June 27, 2014). Swiss Finance Institute Research Paper No. 12-43. Available at SSRN: http://ssrn.com/abstract=2005763 or http://dx.doi.org/10.2139/ssrn.2005763

Contact Information

Kerstin Kehrle
Independent ( email )
Tatjana Xenia Puhan (Contact Author)
University of Zurich ( email )
Plattenstrasse 32
Zürich, CH-8032
Switzerland
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
Feedback to SSRN


Paper statistics
Abstract Views: 2,872
Downloads: 558
Download Rank: 26,447
References:  36
Citations:  2

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.328 seconds