Anomalies and Optionability
96 Pages Posted: 22 Dec 2022 Last revised: 31 Jan 2023
Date Written: December 12, 2022
We observe pronounced differences between anomaly long-short returns in the group of stocks with traded options, relvative to the group of stocks without options. The average monthly anomaly return of 0.63% on non-optionable stocks is almost cut in halves (0.34%) when considering optionable stocks. We document especially large differences for anomalies in momentum, value, and trading frictions-categories, but no differences in profitability, investment, and intangibles-categories. When we adjust for differences in size and liquidity between optionable and non-optionable stocks, the differences in anomaly returns vanish on average. However, we still observe significant differences within some of the categories. These results shed new light on the impact of options on the cross-section of expected stock returns and the origins of anomalies.
Keywords: asset pricing, anomalies, options
JEL Classification: C15, C31, C58, G12
Suggested Citation: Suggested Citation