@article{a35867ffa9e6402fb10660f31846d6a2,
title = "Option Trading Activity, News Releases, and Stock Return Predictability",
abstract = "We examine which categories of option trading volume carry information about future stock prices around corporate news announcements. We predict and find that purchases of options are informative on news days and ahead of unscheduled events but not before scheduled events, and sales of options predict returns only ahead of scheduled news releases. Therefore, although the arrival of new information is an important reason why option volume predicts stock returns, this relation depends on whether the information is scheduled or unscheduled because only the former affects volatility and thus option prices. We also study how trading costs and margin costs affect ex post profitability around news.",
keywords = "news releases, option trading, stock return predictability",
author = "David Weinbaum and Andrew Fodor and Dmitriy Muravyev and Martijn Cremers",
note = "Funding Information: D. Weinbaum gratefully acknowledges research support from the Harris Fellowship in Finance. The authors thank Amber Anand, James Doran, Vyacheslav Fos, Travis Johnson (AFA discussant), Shimon Kogan, Michael Pagano, Allen Poteshman, Nitish Sinha (ITAM discussant), Thijs Van Der Heijden, Aurelio Vasquez, Wei Wu (MARC discussant), Nir Yehuda, and seminar participants at the 2016 American Finance Association (AFA) Meetings, the 2016 Mid-Atlantic Research Conference (MARC) in Finance, and the 2016 Instituto Tecnol{\'o}gico Aut{\'o}nomo de M{\'e}xico (ITAM) Finance Conference for helpful comments and discussions; Thomson Reuters for providing the news data; Elijah DePalma for answering numerous questions about the data; and three anonymous referees, an anonymous associate editor, and Karl Diether, the editor, for helpful suggestions that greatly improved the paper. All errors are our responsibility. Publisher Copyright: Copyright: {\textcopyright} 2022 INFORMS.",
year = "2023",
month = aug,
doi = "10.1287/MNSC.2022.4543",
language = "English (US)",
volume = "69",
pages = "4810--4827",
journal = "Management Science",
issn = "0025-1909",
publisher = "INFORMS Inst.for Operations Res.and the Management Sciences",
number = "8",
}