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Optionable Stocks and Mutual Fund Performance
Author(s) -
Chung Chune Young,
Ryu Doojin,
Wang Kainan,
Zykaj Blerina Bela
Publication year - 2018
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.21844
Subject(s) - mutual fund , closed end fund , stock (firearms) , business , target date fund , volatility (finance) , open end fund , manager of managers fund , fund administration , financial economics , fund of funds , finance , economics , institutional investor , corporate governance , geography , market liquidity , archaeology
We examine whether stock‐level options information drives mutual fund performance. Our paper is motivated by existing studies indicating that options prices or implied volatilities predict stock returns. We find that stock‐implied volatility innovations forecast mutual fund performance. Specifically, mutual funds investing in fewer optionable stocks or optionable stocks with favorable information outperform other funds. In addition, mutual fund managers overall do not trade on past options information. However, well‐performing fund managers use that information to decrease their holdings in poorly performing stocks. Moreover, well‐performing mutual funds containing strong options information tend to increase their holdings in optionable stocks in subsequent periods. © 2017 Wiley Periodicals, Inc. Jrl Fut Mark 38:390–412, 2018