Investor sentiment and value and growth stock index options

Jerry Coakley, George Dotsis, Xiaoquan Liu, Jia Zhai

Research output: Journal PublicationArticlepeer-review

5 Citations (Scopus)

Abstract

The paper examines the relationship between both individual and institutional investor sentiment measures and the risk-neutral skewness (RNS) of seven stock index options comprising either growth or value stocks. It provides novel evidence that growth index option prices are affected by sentiment measures. The regression results indicate a significantly positive relationship between sentiment measures and the RNS estimated from four growth index options and a negative relationship with two value index options. The results are economically significant since an associated long–short trading strategy yields high abnormal returns with a Sharpe ratio of up to 1.1 and zero exposure to systematic risk. These high abnormal returns provide evidence of a value premium type anomaly in the index options markets.

Original languageEnglish
Pages (from-to)1211-1229
Number of pages19
JournalEuropean Journal of Finance
Volume20
Issue number12
DOIs
Publication statusPublished - 27 Dec 2014
Externally publishedYes

Keywords

  • growth options
  • option market anomalies
  • risk-neutral skewness

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)

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