Leveraging a Call-Put Ratio as a Trading Signal
The Version of Record of this manuscript has been published and is available in Quantitative Finance (2019), 19 (5): 763-777.
36 Pages Posted: 27 Nov 2014 Last revised: 15 Sep 2019
Date Written: 2018
We examine whether a put-call ratio, derived from a unique set of market data, can be used to predict directional moves in asset prices during various market conditions between March 2005 and December 2012. Our findings show: 1) specific market participant’s options trading volume is a predecessor to asset price movements, and 2) portfolios based on the put-call ratio adjusted for four factors Carhart model and transaction costs exhibit abnormal excess returns.
Keywords: Anomalies in Prices; Portfolio Management; Technical Trading; Financial Forecasting; Investment Management; Options; Behavioral Finance
JEL Classification: C15, C49, C63
Suggested Citation: Suggested Citation