Investor Attention and Option Returns

60 Pages Posted: 20 Mar 2018 Last revised: 16 Jun 2020

See all articles by Siu Kai Choy

Siu Kai Choy

King's College London

Jason Zhanshun Wei

University of Toronto - Rotman School of Management

Date Written: June 15, 2020


By extending Kumar, Ruenzi and Ungeheuer (2018), we examine whether the attention-induced overpricing spills over from the stock market to the options market. While they find an increasing buying pressure from retail investors when the stock achieves an attention-grabbing status in the form of a daily winner or loser, we establish that option investors (especially retail investors) buy more calls and puts on such winner or loser stocks. The buying pressure leads to a temporary overvaluation evidenced by subsequent lower delta-hedged returns. The economic magnitude is large. For instance, a zero-financing portfolio involving options on loser stocks renders an alpha of 2.906% per month. Instead of short-sale constraints, the overvaluation of options is due to a combination of margin requirements, differences of opinion, and risk-aversion.

Keywords: Investor attention, daily winners and losers, salience, overpricing, option returns

JEL Classification: G14

Suggested Citation

Choy, Siu Kai and Wei, Jason Zhanshun, Investor Attention and Option Returns (June 15, 2020). Rotman School of Management Working Paper No. 3141970, Available at SSRN: or

Siu Kai Choy (Contact Author)

King's College London ( email )

London, WC2R 2LS
United Kingdom

Jason Zhanshun Wei

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
416-978-3698 (Phone)
416-971-3048 (Fax)

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