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O/S: The relative trading activity in options and stock

  • Roll, Richard
  • Schwartz, Eduardo
  • Subrahmanyam, Avanidhar

Relatively little is known about the trading volume in derivatives relative to the volume in underlying stocks. We study the time-series properties and the determinants of the options/stock trading volume ratio (O/S) using a comprehensive cross-section and time-series of data on equities and their listed options. O/S is related to many intuitive determinants such as delta and trading costs, and it also varies with institutional holdings, analyst following, and analyst forecast dispersion. O/S is higher around earnings announcements, suggesting increased trading in the options market. Further, post-announcement absolute returns are positively related to pre-announcement O/S, which suggests that at least part of the pre-announcement options trading is informed.

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Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 96 (2010)
Issue (Month): 1 (April)
Pages: 1-17

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Handle: RePEc:eee:jfinec:v:96:y:2010:i:1:p:1-17
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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