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Option price implied information and REIT returns

Author

Listed:
  • Cao, Jie
  • Han, Bing
  • Song, Linjia
  • Zhan, Xintong

Abstract

We investigate stock return predictability by various option price-based measures using real estate investment trusts (REITs). REITs are more transparent and efficiently priced than general stocks, but REIT options are less liquid. We find that most of the option price-based measures do not significantly forecast REIT stock returns, but changes in option implied volatilities are robust and significant return predictors. We provide further evidence supporting the informed trading channel instead of price pressure effects as the explanation for this return predictability.

Suggested Citation

  • Cao, Jie & Han, Bing & Song, Linjia & Zhan, Xintong, 2023. "Option price implied information and REIT returns," Journal of Empirical Finance, Elsevier, vol. 71(C), pages 13-28.
    • Handle: RePEc:eee:empfin:v:71:y:2023:i:c:p:13-28
    DOI: 10.1016/j.jempfin.2022.12.013
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    More about this item

    Keywords

    Informed trading in options; Stock return predictability; Real estate investment trusts;
    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
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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