Mispricing, short-sale constraints, and the cross-section of option returns
| Autor: | Lakshmi Shankar Ramachandran, Jitendra Tayal |
|---|---|
| Rok vydání: | 2021 |
| Předmět: |
040101 forestry
Economics and Econometrics 050208 finance Relation (database) Strategy and Management 05 social sciences Equity (finance) 04 agricultural and veterinary sciences Market maker Short interest ratio Valuation of options Accounting 0502 economics and business Econometrics Economics 0401 agriculture forestry and fisheries Imperfect Limits to arbitrage Finance Stock (geology) |
| Zdroj: | Journal of Financial Economics. 141:297-321 |
| ISSN: | 0304-405X |
| DOI: | 10.1016/j.jfineco.2021.03.006 |
| Popis: | Motivated by the theory of demand-based option pricing in imperfect markets, we examine the relation between short-sale constraints and equity option returns, conditional on the level of mispricing in the underlying stock. We report a monotonic relation between various measures of short-sale constraints and delta-hedged returns of put options on overpriced stocks. This relation is robust to controls for firm attributes and limits to arbitrage proxies. Our findings suggest that while investors drive up the demand for these put options, dealers command a high premium as compensation for the increased market making risk. We do not find a robust relation for either put options on underpriced stocks or call options. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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