Events calendar

15.00 - 16.30 Friday 5 Apr 2013

On campus - London - United Kingdom

Accounting Seminar Series

Speaker(s): K.R. Subramanyam (University of Southern California)

Do Options Price Predictable Patterns in Future Stock Returns? Evidence from Accounting Anomalies

We examine whether option markets anticipate predictable patterns in future stock returns associated with several well-documented accounting anomalies: the post-earnings-announcement drift (PEAD), working capital accruals, net operating assets, and changes in net operating asset turnover. Results suggest that option prices do not price predictable patterns in future stock returns, rather they exactly reflect contemporaneous equity returns. Therefore, the option markets appear to be subject to similar forms of mispricing as the stock markets and are not semi-strong efficient with respect to accounting information. Further tests suggest that the high costs of trading options in terms of both time-value premiums and transaction costs preclude traders from purchasing options to exploit these opportunities. However, we find significant returns to a strategy of writing options to take advantage of these predictable return patterns.

Event location

PLG02

Download: KR Subramanyam Workshop Paper 05Apr13.pdf (751.00 KB)
Contact: Debbie Hughes - Email: dhughes@london.edu Tel: +44 (0)20 7000 8120