Investor Sentiment and Value and Growth Index Options

37 Pages Posted: 7 Aug 2011 Last revised: 15 Dec 2011

See all articles by Jerry Coakley

Jerry Coakley

University of Essex - Essex Business School

George Dotsis

National and Kapodistrian University of Athens - Faculty of Economics; Essex Finance Centre, Essex Business School, University of Essex

Xiaoquan Liu

Essex Business School

Jia Zhai

affiliation not provided to SSRN

Date Written: July 15, 2011

Abstract

This paper examines the relationship between investor sentiment and stock index options. More specifically, it investigates the contrasting impact of individual and institutional investor sentiment on value and growth stock options. We take the Nasdaq 100 and Russell 2000 Growth indexes as proxies for growth portfolios and the Michigan Consumer Confidence Index as a proxy for individual sentiment. The findings show that individual sentiment exerts a significantly positive impact on the risk-neutral skewness of the Nasdaq 100 and Russell 2000 Growth index options while it is unrelated to the risk-neutral skewness of the Russell 2000 Value index option. Our empirical results support the conjecture that options on growth stock indexes are more likely to be affected by individual investor sentiment because proportionally more individual customers trade these contracts as compared with those on value indexes.

Keywords: Risk-neutral skewness, value premium, option market anomalies

JEL Classification: G12, G13

Suggested Citation

Coakley, Jerry and Dotsis, George and Liu, Xiaoquan and Zhai, Jia, Investor Sentiment and Value and Growth Index Options (July 15, 2011). Available at SSRN: https://ssrn.com/abstract=1906286 or http://dx.doi.org/10.2139/ssrn.1906286

Jerry Coakley

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
+44 1206 872455 (Phone)
+44 1206 873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/afm/staff/coakley.shtm

George Dotsis (Contact Author)

National and Kapodistrian University of Athens - Faculty of Economics ( email )

Greece

HOME PAGE: http://sites.google.com/site/gdotsis/

Essex Finance Centre, Essex Business School, University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Xiaoquan Liu

Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Jia Zhai

affiliation not provided to SSRN ( email )

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