The Dynamic Relation Between Options Trading, Short Selling, and Aggregate Stock Returns
56 Pages Posted: 1 Sep 2012 Last revised: 16 Apr 2015
Date Written: April 15, 2015
Abstract
We examine the information contained in option trading and short selling using a dynamic VAR model. First, we address whether options and shorts are complements or substitutes. Contrary to existing event studies around option listing introductions, we show short selling and options trading are complements rather than substitutes. Second, we examine which group is relatively more informed. The results indicate that options traders are relatively more informed. Finally, we examine if options are redundant. Our results indicate that options markets are non-redundant.
Keywords: Short trading, options market, informed traders
JEL Classification: G12, G14, G17
Suggested Citation: Suggested Citation