Option Price Implied Information and REIT Returns
50 Pages Posted: 23 Feb 2021 Last revised: 23 Mar 2022
Date Written: March 23, 2022
We investigate stock return predictability by various option price-based measures using real estate investment trusts (REITs). REITs are more transparent and efficiently priced than general stocks, but REIT options are less liquid. We find that most of the option price-based measures do not significantly forecast REIT stock returns, but changes in option implied volatilities are robust and significant return predictors. We provide further evidence supporting the informed trading channel instead of price pressure effects as the explanation for this return predictability.
Keywords: informed trading in options; stock return predictability; real estate investment trusts
JEL Classification: G12; G14; R30
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