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The dynamic relation between options trading, short selling, and aggregate stock returns

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  • R. Jared DeLisle

    (Utah State University)

  • Bong Soo Lee

    (Florida State University)

  • Nathan Mauck

    (University of Missouri - Kansas City)

Abstract

We examine the information contained in option trading and short selling using a dynamic VAR model. First, we address whether options and shorts are complements or substitutes. Contrary to existing event studies around option listing introductions, we show short selling and options trading are complements rather than substitutes. Second, we examine which group is relatively more informed. The results indicate that options traders are relatively more informed. Finally, we examine if options are redundant. Our results indicate that options markets are non-redundant.

Suggested Citation

  • R. Jared DeLisle & Bong Soo Lee & Nathan Mauck, 2016. "The dynamic relation between options trading, short selling, and aggregate stock returns," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 645-671, October.
    • Handle: RePEc:kap:rqfnac:v:47:y:2016:i:3:d:10.1007_s11156-015-0516-2
    DOI: 10.1007/s11156-015-0516-2
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    More about this item

    Keywords

    Short selling; Options market; Informed traders; Time series analysis;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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