Option Price Implied Information and REIT Returns

50 Pages Posted: 23 Feb 2021 Last revised: 13 Jan 2023

See all articles by Jie Cao

Jie Cao

The Hong Kong Polytechnic University - School of Accounting and Finance

Bing Han

University of Toronto, Rotman School of Management

Linjia Song

School of Management, Xiamen University

Xintong Zhan

Department of Finance, School of Management, Fudan University

Date Written: January 4, 2023

Abstract

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

Suggested Citation

Cao, Jie and Han, Bing and Song, Linjia and Zhan, Xintong, Option Price Implied Information and REIT Returns (January 4, 2023). Rotman School of Management Working Paper No. 3788744, Journal of Empirical Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3788744 or http://dx.doi.org/10.2139/ssrn.3788744

Jie Cao

The Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom, Kowloon
Hong Kong

HOME PAGE: http://sites.google.com/site/jiejaycao

Bing Han (Contact Author)

University of Toronto, Rotman School of Management ( email )

Toronto, Ontario M5S 3E6
Canada
4169460732 (Phone)

Linjia Song

School of Management, Xiamen University ( email )

No.422 Siming Nan Road
Xiamen, Fujian 361005
China

Xintong Zhan

Department of Finance, School of Management, Fudan University ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

HOME PAGE: http://sites.google.com/view/xintongzhan

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