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The joint cross section of stocks and options

Tarun Chordia (), Alexander Kurov (), Dmitriy Muravyev () and Avanidhar Subrahmanyam ()

Management Science, 2021, vol. 67, issue 3, 1758-1778

Abstract: Do order flows in index derivatives play an informational role? Weekly index put order flow on the International Securities Exchange positively and robustly predicts weekly S&P 500 index returns. This result obtains mainly for net put buying and is stronger in high VIX periods and in periods following macroeconomic announcements. We explore rationales for our findings, which include investor sentiment, the notion that market makers trade on information in options markets, and option-based risk protection strategies used by retail investors. The last explanation accords best with our analysis. This paper was accepted by Tyler Shumway, finance.

Keywords: index options; order flow; information; market efficiency (search for similar items in EconPapers)
Date: 2021
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