Disagreement in the Equity Options Market and Stock Returns

49 Pages Posted: 31 Aug 2019

See all articles by Benjamin Golez

Benjamin Golez

University of Notre Dame

Ruslan Goyenko

McGill University - Desautels Faculty of Management

Date Written: August 26, 2019

Abstract

We estimate investor disagreement from synthetic long and short stock trades in the equity options market. We show that high disagreement predicts low stock returns after positive earnings surprises and high stock returns after negative earnings surprises. These effects are symmetric for stocks, for which short sale constraints are less likely to be binding. For speculative high beta stocks, the negative effect is asymmetrically stronger. In the cross-section of all stocks and in the subset of 500 largest companies, high disagreement robustly predicts low monthly and weekly stock returns.

Keywords: Disagreement, dispersion of beliefs, equity options, stock returns, earnings surprises

JEL Classification: G12, G13, G14

Suggested Citation

Golez, Benjamin and Goyenko, Ruslan, Disagreement in the Equity Options Market and Stock Returns (August 26, 2019). Available at SSRN: https://ssrn.com/abstract=3443241 or http://dx.doi.org/10.2139/ssrn.3443241

Benjamin Golez (Contact Author)

University of Notre Dame ( email )

256 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
(574) 631-1458 (Phone)

HOME PAGE: http://business.nd.edu/BenGolez/

Ruslan Goyenko

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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