Abstract
This paper considers a plethora of option-based measures of stock mispricing introduced by previous literature. These measures are based on differences between implied and actual stock prices, differences in implied volatilities across options, and on option trading volume. We show that stocks that these measures indicate are mispriced are small and/or hard to borrow. When small and hard-to-borrow stocks are omitted, returns to short selling are insignificant for some of the measures and greatly diminished for others. Three of the nine measures, however, predict positive abnormal stock returns for value-weighted portfolios without obvious market frictions, suggesting that they constitute investment opportunities.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
