Abstract

http://ssrn.com/abstract=2266073
 
 

References (16)



 


 



The Information Content of Option Ratios


Benjamin M. Blau


Utah State University - Huntsman School of Business

Nga Nguyen


Ohio University; Texas Tech University

Ryan J. Whitby


Utah State University

May 16, 2013


Abstract:     
A broad stream of research shows that information flows into underlying stock prices through the options market. For instance, prior research shows that both the Put-Call Ratio (P/C) and the Option-to-Stock Volume Ratio (O/S) predict negative future stock returns. In this paper, we compare the level of information contained in these two commonly used option volume ratios. Our comparison of the return predictability contained in these ratios yields some new results. First, we find that P/C ratios contain more predictability about future stock returns at the daily level than O/S ratios. Second, in contrast to our first set of results, O/S ratios contain more predictability about future returns at the weekly and monthly levels than P/C ratios. In fact, our tests show that while P/C ratios contain predictability about future daily returns and, to some extent, future weekly returns, the return predictability in P/C ratios is fleeting. O/S ratios, on the other hand, significantly predict negative returns at both the weekly and monthly levels, respectively.

Number of Pages in PDF File: 29

Keywords: Put-Call Ratios, Option Volume-to-Stock Volume Ratio, Informed Trading, Return Predictability

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Date posted: May 17, 2013  

Suggested Citation

Blau, Benjamin M. and Nguyen, Nga and Whitby, Ryan J., The Information Content of Option Ratios (May 16, 2013). Available at SSRN: http://ssrn.com/abstract=2266073 or http://dx.doi.org/10.2139/ssrn.2266073

Contact Information

Benjamin M. Blau (Contact Author)
Utah State University - Huntsman School of Business ( email )
3500 Old Main Hill
Logan, UT 84322
United States
Nga Nguyen
Ohio University ( email )
Athens, OH 45701-2979
United States
Texas Tech University
2500 Broadway
Lubbock, TX 79409
United States
Ryan J. Whitby
Utah State University ( email )
3500 Old Main Hill
Logan, UT 84322-3500
United States
435.797.9495 (Phone)
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