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The directional information content of options volumes
Author(s) -
Ryu Doojin,
Yang Heejin
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.21960
Subject(s) - leverage (statistics) , exploit , business , monetary economics , volume (thermodynamics) , financial economics , econometrics , economics , computer science , computer security , artificial intelligence , physics , quantum mechanics
This study examines the directional information content realized by trades in a highly liquid options market by constructing put–call volume ratios and decoupled options‐to‐spot volume ratios. By investigating whether the specific investor type predicts underlying returns and the method used to exploit a directional information advantage, we find that foreign investment firms can leverage their directional information by executing buy trades to open new positions. Their open‐buy trades significantly predict next‐day spot returns, whereas trades initiated by domestic firms do not. This relationship becomes stronger for out‐of‐the‐money, large, and short‐horizon options trades and during the short‐sale restriction period.