Arbeitspapier
Stock Illiquidity, option prices, and option returns
We provide evidence of a strong effect of the underlying stock's illiquidity on option prices by showing that the average absolute difference between historical and implied volatility increases with stock illiquidity. This pattern translates into significant excess returns of option trading strategies that are not explained by common risk factors. Simulation results show, however, that our results can be explained by the hedging costs of market makers who are net long in options on some underlyings and net short in options on other underlyings. Our empirical findings are robust with respect to the chosen illiquidity measure, the measure of option expensiveness, and the return period.
- Sprache
-
Englisch
- Erschienen in
-
Series: CFR Working Paper ; No. 16-08
- Klassifikation
-
Wirtschaft
Asset Pricing; Trading Volume; Bond Interest Rates
Contingent Pricing; Futures Pricing; option pricing
- Thema
-
illiquidity
equity options
option returns
option strategies
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Kanne, Stefan
Korn, Olaf
Uhrig-Homburg, Marliese
- Ereignis
-
Veröffentlichung
- (wer)
-
University of Cologne, Centre for Financial Research (CFR)
- (wo)
-
Cologne
- (wann)
-
2016
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:45 MEZ
Datenpartner
Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Kanne, Stefan
- Korn, Olaf
- Uhrig-Homburg, Marliese
- University of Cologne, Centre for Financial Research (CFR)
Entstanden
- 2016
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