Do option open-interest changes foreshadow future equity returns?

Fodor, Andy; Krieger, Kevin; Doran, James

doi:10.1007/s11408-011-0164-z

Cited by 18 publications

(8 citation statements)

References 31 publications

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“…In Figure 4, the horizontal lines represent the OLS regression coefficient, clearly showing that the pooled QR method captures the impact of predictor variables well across the return distribution. The findings lend support to the results of Bhuyan and Chaudhury (2005) and Fodor et al (2011), where a positive impact of the increase in open interest on returns is emphasized.…”

Section: Resultssupporting

confidence: 82%

Does time-varying illiquidity matter for the Indian stock market? Evidence from high-frequency data

Bhattacharya

Jha

2021

Australian Journal of Management

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This article examines variations in illiquidity in the Indian stock market, using intraday data. Panel regression reveals prevalent day-of-the-week, month, and holiday effects in illiquidity across industries, especially during exogenous shock periods. Illiquidity fluctuations are higher during the second and third quarters. The ranking of most illiquid stocks varies, depending on whether illiquidity is measured using an adjusted or unadjusted Amihud measure. Using pooled quantile regression, we note that illiquidity plays an important asymmetric role in explaining stock returns under up- and down-market conditions in the presence of open interest and volatility. The impact of illiquidity is more severe during periods of extreme high and low returns. JEL Classification: G10, G12

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Section: Resultssupporting

confidence: 82%

Does time-varying illiquidity matter for the Indian stock market? Evidence from high-frequency data

Bhattacharya

Jha

2021

Australian Journal of Management

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“…Prior literature also suggests that changes in option open interest are related to future stock returns. Fodor, Krieger, and Doran () find that large increases in put open interest are followed by lower equity returns, while call open interest increases precede relatively strong future returns. A positive change in open interest is associated with the opening of new option contracts.…”

Section: Introductionmentioning

confidence: 99%

Show me the money: Option moneyness concentration and future stock returns

Bergsma

Csapi

Diavatopoulos

et al. 2019

Journal of Futures Markets

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Informed traders often use options that are not in‐the‐money due to higher potential gains for a smaller upfront cost. Thus, trading activity by option moneyness should be a gauge of informed option trading. We construct a dollar volume‐weighted average moneyness measure to capture option trading activity at different moneyness levels. Stock returns increase with this measure, suggesting more trading activity in options with higher leverage predicts future stock returns. Our results hold cross‐sectionally and at the portfolio level yielding a Fama–French five‐factor α of 12% per year for all stocks and 33% per year for high implied volatility stocks.

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“…Third, there is a need to investigate other related variables, such as growth of the call‐to‐put options open interest ratio and call‐to‐put options volume ratio, as used in Fodor et al (2011). Thus, the growth of call‐to‐put options open interest ratio and call‐to‐put options volume ratio is constructed and controlled.…”

Section: Robustness Testsmentioning

confidence: 99%

“…Their results show that trading strategies based on options open interest yield higher returns than those based on the S&P 500 index or the buy‐and‐hold strategy. Fodor, Krieger, and Doran (2011) use a change in open interest of the call‐and‐put options as a predictor of future equity returns in individual stocks. Their empirical results show that an increase in call options open interest predicts increased equity returns.…”

Section: Introductionmentioning

confidence: 99%

Index options open interest and stock market returns

Seo

Byun

Kim

2020

Journal of Futures Markets

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This study finds that the growth of index options open interest has a significant relation with future stock market returns. We propose a theoretical model that considers hedgers and informed traders in the options market and suggests that hedgers fully utilize options according to their expectations of future stock returns. The empirical results show that the growth of out-of-the-money call options open interest is significantly related with future stock market returns.These findings provide supporting evidence for our theoretical model. K E Y W O R D S open interest, options market, stock market returns J E L C L A S S I F I C A T I O N E31; G12; G13Recent empirical studies that focus on information provided by options' implied volatility or price to predict future stock price movements include An, Ang, Bali, and Cakici (

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Do option open-interest changes foreshadow future equity returns?

Abstract: Options, Open interest, Market efficiency, Investor sentiment, G11, G12, G14,

Cited by 18 publications

References 31 publications

Does time-varying illiquidity matter for the Indian stock market? Evidence from high-frequency data

Does time-varying illiquidity matter for the Indian stock market? Evidence from high-frequency data

Show me the money: Option moneyness concentration and future stock returns

Index options open interest and stock market returns

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