Optionable Stocks and Mutual Fund Performance

Journal of Futures Markets, Forthcoming

31 Pages Posted: 22 Aug 2016 Last revised: 6 Jan 2017

See all articles by Chune Young Chung

Chune Young Chung

Chung-Ang University - College of Business & Economics

Doojin Ryu

Sungkyunkwan University

Kainan Wang

University of Toledo

Blerina Bela Zykaj

Clemson University

Date Written: January 5, 2017

Abstract

We examine whether stock-level options information drives mutual fund performance. Our paper is motivated by existing studies indicating that options prices or implied volatilities predict stock returns. We find that stock-implied volatility innovations forecast mutual fund performance. Specifically, mutual funds investing in fewer optionable stocks or optionable stocks with favorable information outperform other funds. In addition, mutual fund managers overall do not trade on past options information. However, well-performing fund managers use that information to decrease their holdings in poorly-performing stocks. Moreover, well-performing mutual funds containing strong options information tend to increase their holdings in optionable stocks in subsequent periods.

Keywords: implied volatility; mutual fund; optionable stock; predictability; performance

JEL Classification: G11; G13

Suggested Citation

Chung, Chune Young and Ryu, Doojin and Wang, Kainan and Zykaj, Blerina Bela, Optionable Stocks and Mutual Fund Performance (January 5, 2017). Journal of Futures Markets, Forthcoming . Available at SSRN: https://ssrn.com/abstract=2826262 or http://dx.doi.org/10.2139/ssrn.2826262

Chune Young Chung

Chung-Ang University - College of Business & Economics ( email )

84 Heuk-suk Ro
Seoul
Korea, Republic of (South Korea)

Doojin Ryu

Sungkyunkwan University ( email )

53 Myeongnyun-dong 3-ga Jongno-ju
Guro-gu
Seoul, 110-745
Korea, Republic of (South Korea)

Kainan Wang (Contact Author)

University of Toledo ( email )

Department of Finance
Mail Stop 103
Toledo, OH 43606
United States

Blerina Bela Zykaj

Clemson University ( email )

101 Sikes Ave
Clemson, SC 29634
United States

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