We uncover a mechanical relation in the predictability of stock returns from option prices. If the underlying stock is illiquid, the prices of calls and puts can deviate from the parity relation because of an asymmetry in their hedging costs, and the sign of the resultant implied-volatility spread depends on the expected return of the stock. We test this mechanism by separating the hedging demand from informed trading in options. Our identification strategy relies on the intersection of two sets of data: (i) stock-day pairs with zero option volume, and (ii) banned stocks in the short-sale ban period, when a limited exemption was granted to option dealers for the purpose of hedging. Our results significantly weaken prior evidence on informed trading in the options market.
Keywords: Put-Call Parity, Stock Return Predictability, Hedging Costs, Short-Selling.
JEL Classification: G11, G12, C13.
학회소식
[2016년 제 4차] How Does Stock Illiquidity Affect the Informational
작성자 : 관리자
조회수 : 976
게시일 :
2016-12-21
