Option Trading Activity, News Releases, and Stock Return Predictability

David Weinbaum, Andrew Fodor, Dmitriy Muravyev, Martijn Cremers

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)4810-4827
Number of pages18
JournalManagement Science
Volume69
Issue number8
DOIs
StatePublished - Aug 2023

Keywords

  • news releases
  • option trading
  • stock return predictability

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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