Stock Return Autocorrelations and Expected Option Returns

• 成果类型: Article
• 署名作者: Jeon, Yoontae; Kan, Raymond; Li, Gang
• 署名单位: McMaster University; University of Toronto; Chinese University of Hong Kong
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.03071
• 发表日期: 2025
• 关键词: stock return autocorrelation; expected option returns; cross-section of option returns; option portfolios

摘要

We show that the return autocorrelation of underlying stock is an important determinant of expected equity option returns. Using an extended Black-Scholes model incorporating the presence of stock return autocorrelation, we demonstrate that expected returns of both call and put options are increasing in the return autocorrelation coefficient of the underlying stock. Consistent with this insight, we find strong empirical support in the cross-section of average returns of equity options. Our paper highlights the necessity to control for stock return autocorrelation when studying option return predictability.