Media Sentiment and the Cross-Section of Option Returns

60 Pages Posted: 14 Apr 2022

See all articles by Ilias Filippou

Ilias Filippou

Washington University in St. Louis - John M. Olin Business School

Pedro Angel Garcia-Ares

Instituto Tecnológico Autónomo de México (ITAM)

Date Written: July 3, 2020

Abstract

We examine the cross-sectional predictive ability of media pessimism for delta-hedged equity option returns. We find that a long-short portfolio that buys options of stocks with low media pessimism while going short options attached to high pessimism stocks, over the previous month, renders positive and statistically significant returns and alphas. Specifically, we find that delta-hedged options tend to be more overpriced when media pessimism is high. Our results are robust to the presence of transaction costs, different weighting schemes, different formation periods and cannot be explained by standard risk factor models.

Keywords: Media Sentiment, equity option returns, news releases, option trading

JEL Classification: G11, G12, G14, G32

Suggested Citation

Filippou, Ilias and Garcia-Ares, Pedro Angel, Media Sentiment and the Cross-Section of Option Returns (July 3, 2020). Available at SSRN: https://ssrn.com/abstract=4054872 or http://dx.doi.org/10.2139/ssrn.4054872

Ilias Filippou

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Pedro Angel Garcia-Ares (Contact Author)

Instituto Tecnológico Autónomo de México (ITAM)

Av. Camino a Sta. Teresa 930
Col. Héroes de Padierna
Mexico City, D.F. 01000, Federal District 01080
Mexico

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