Journal ArticleDOI
Options, Short Sales, and Market Completeness
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In this article, the authors present empirical evidence that trading in options contributes to both transactional and informational efficiency of the stock market by reducing the effect of constraints on short sales, and they also find significant effects on option prices, related to the short interest in the underlying stock.Abstract:
This paper presents empirical evidence that trading in options contributes to both transactional and informational efficiency of the stock market by reducing the effect of constraints on short sales. The significantly higher average level of short interest exhibited by optionable stocks supports the argument that options facilitate short selling. We also find significant effects on option prices, related to the short interest in the underlying stock. We then present evidence that options also increase information efficiency. Earlier work, that is replicated and extended here, has suggested that short sale constraints cause stock prices to underweight negative information. Options appear to reduce that effect.read more
Citations
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Journal ArticleDOI
From Efé cient Markets Theory to Behavioral Finance
TL;DR: The idea that speculative asset prices always incorporate the best information about fundamental values and that prices change only because of good, sensible information meshed very well with theoretical trends of the 1970s.
Journal ArticleDOI
Breadth of ownership and stock returns
TL;DR: In this article, the authors developed a stock market model with differences of opinion and short-sales constraints and found that stocks whose change in breadth in the prior quarter is in the lowest decile of the sample underperform those in the top decile by 6.38% in the twelve months after formation.
Journal ArticleDOI
The Information in Option Volume for Future Stock Prices
Jun Pan,Allen M. Poteshman +1 more
TL;DR: In this paper, the authors present strong evidence that option trading volume contains information about future stock prices, and they find that stocks with low put-call ratios outperform stocks with high putcall ratios by more than 40 basis points on the next day and more than 1% over the next week.
Journal ArticleDOI
DotCom Mania: The Rise and Fall of Internet Stock Prices
Eli Ofek,Matthew Richardson +1 more
TL;DR: This article explored a model based on agents with heterogenous beliefs facing short sales restrictions and its explanation for the rise, persistence, and eventual fall of Internet stock prices, and linked the Internet bubble burst to the unprecedented level of lockup expirations and insider selling.
Journal ArticleDOI
Short-sale constraints and stock returns
TL;DR: The authors studied the costs of short selling equities from 1926 to 1933, using the publicly observable market for borrowing stock and found that stocks that are expensive to short or which enter the borrowing market have high valuations and low subsequent returns, consistent with the overpricing hypothesis.
References
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Journal ArticleDOI
The Pricing of Options and Corporate Liabilities
Fischer Black,Myron S. Scholes +1 more
TL;DR: In this paper, a theoretical valuation formula for options is derived, based on the assumption that options are correctly priced in the market and it should not be possible to make sure profits by creating portfolios of long and short positions in options and their underlying stocks.
Journal ArticleDOI
A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity
TL;DR: In this article, a parameter covariance matrix estimator which is consistent even when the disturbances of a linear regression model are heteroskedastic is presented, which does not depend on a formal model of the structure of the heteroSkewedness.
ReportDOI
A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix
Whitney K. Newey,Kenneth D. West +1 more
TL;DR: In this article, a simple method of calculating a heteroskedasticity and autocorrelation consistent covariance matrix that is positive semi-definite by construction is described.
Journal ArticleDOI
The relationship between return and market value of common stocks
TL;DR: Scholes et al. as discussed by the authors examined the relationship between the total market value of the common stock of a firm and its return and found that small firms had higher risk adjusted returns than large firms.
Journal ArticleDOI
Option pricing: A simplified approach☆
TL;DR: In this paper, a simple discrete-time model for valuing options is presented, which is based on the Black-Scholes model, which has previously been derived only by much more difficult methods.