Index options open interest and stock market returns

Sung Won Seo, Suk Joon Byun and Jun Sik Kim

Journal of Futures Markets, 2020, vol. 40, issue 6, 989-1010

Abstract: This study finds that the growth of index options open interest has a significant relation with future stock market returns. We propose a theoretical model that considers hedgers and informed traders in the options market and suggests that hedgers fully utilize options according to their expectations of future stock returns. The empirical results show that the growth of out‐of‐the‐money call options open interest is significantly related with future stock market returns. These findings provide supporting evidence for our theoretical model.

Date: 2020
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https://doi.org/10.1002/fut.22095

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:40:y:2020:i:6:p:989-1010

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