Learning and Index Option Returns
Little is known about the economic sources that may generate the abnormal returns observed in put index options. We show that the learning process followed by investors may be one such source. We develop an equilibrium model under partial information in which a rational Bayesian learner prices put o...
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Published in | Journal of business & economic statistics Vol. 38; no. 2; pp. 327 - 339 |
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Main Authors | , , , |
Format | Journal Article |
Language | English |
Published |
Alexandria
Taylor & Francis
02.04.2020
Taylor & Francis Ltd |
Subjects | |
Online Access | Get full text |
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Summary: | Little is known about the economic sources that may generate the abnormal returns observed in put index options. We show that the learning process followed by investors may be one such source. We develop an equilibrium model under partial information in which a rational Bayesian learner prices put option contracts. Our model generates put option returns similar to the empirical returns of S&P 500 put index options. This result is not obtained when we analyze alternative setups of the model in which no learning process exists. |
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ISSN: | 0735-0015 1537-2707 |
DOI: | 10.1080/07350015.2018.1505629 |