Hostname: page-component-78c5997874-g7gxr Total loading time: 0 Render date: 2024-11-15T04:15:52.121Z Has data issue: false hasContentIssue false
  • English
  • Français

Put-Call Parity and Expected Returns

Published online by Cambridge University Press:  06 April 2009

Thomas J. Finucane
Get access Rights & Permissions [Opens in a new window]

Abstract

This study examines the hypothesis that in the presence of market frictions, relative put and call prices contain information concerning future returns of the underlying asset. A measure of relative prices is derived from the put-call parity relationship for index options and applied to a three-year sample of OEX option transactions. The results show that the measure of relative index option prices leads the stock market by at least 15 minutes.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 26 , Issue 4 , December 1991 , pp. 445 - 457
Copyright
Copyright © School of Business Administration, University of Washington 1991

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Bhattacharya, A. “Price Changes of Related Securities: The Case of Call Options and Stocks.” Journal of Financial and Quantitative Analysis, 22 (03 1987), 1–15.CrossRefGoogle Scholar
Boness, J. “Elements of a Theory of Stock-Option Value.” Journal of Political Economy, 72 (04 1964), 163–175.CrossRefGoogle Scholar
Brennan, M. “The Pricing of Contigent Claims in Discrete Time Models.” Journal of Finance, 34 (03 1979), 53–68.CrossRefGoogle Scholar
Chance, D. “Parity Tests of Index Options.” Advances in Futures and Options Research, 2 (1987), 46–64.Google Scholar
Chance, D. “Boundary Condition Tests of Bid and Ask Prices of Index Call Options.” Journal of Financial Research, 11 (Spring 1988), 21–31.CrossRefGoogle Scholar
Constantinides, G. M. “Market Risk Adjustment in Project Valuation.” Journal of Finance, 33 (05 1978), 603–616.CrossRefGoogle Scholar
Cox, J., and Rubinstein, M.. Options Markets. Englewood Cliffs, NJ: Prentice Hall (1985).Google Scholar
Diz, F., and Finucane, T.. “The Time Series Properties of S&P 100 Index Option Implied Volatilities.” Working Paper, Syracuse Univ. (1991).Google Scholar
Evnine, J., and Rudd, A.. “Index Options: The Early Evidence.” Journal of Finance, 40 (07 1985), 743–756.CrossRefGoogle Scholar
Harvey, C. R., and Whaley, R. E.. “The Impact of Discrete Cash Dividends on the Valuation of S&P 100 Index Options.” Working Paper, Duke Univ. (05 1990a).Google Scholar
Harvey, C. R., “An Analysis of S&P 100 Index Option Valuation.” Working Paper, Duke Univ. (09 1990b).Google Scholar
Jarrow, R., and Rudd, A.. Option Pricing. Homewood, IL: Richard D. Irwin (1983).Google Scholar
Lee, W.; Rao, R.; and Auchmuty, J.. “Option Pricing in a Lognormal Securities Market with Discrete Trading.” Journal of Financial Economics, 9 (03 1981), 75–101.CrossRefGoogle Scholar
MacKinlay, A. C., and Ramaswamy, K.. “Index-Futures Arbitrage and the Behavior of Stock Index Futures Prices.” The Review of Financial Studies, 1 (Summer 1988), 137–158.CrossRefGoogle Scholar
Manaster, S., and Rendleman, R.. “Option Prices as Predictors of Equilibrium Stock Prices.” Journal of Finance, 37 (09 1982), 1043–1057.CrossRefGoogle Scholar
O'Brien, T. “A Discrete Time Option Model Dependent on Expected Return: A Note.” Journal of Finance, 41 (06 1986), 515–520.CrossRefGoogle Scholar
O'Brien, T., and Selby, M.. “Option Pricing Theory and Asset Expectations: A Review and Discussion in Tribute to James Boness.” Financial Review, 21 (11 1986), 399–418.CrossRefGoogle Scholar
Samuelson, P. “Rational Theory of Warrant Pricing.” Industrial Management Review, 6 (Spring 1965), 13–32.Google Scholar
Satterthwaite, F. “An Approximate Distribution of Estimates of Variance Components.” Biometrics Bulletin, 2 (1946), 110–114.CrossRefGoogle ScholarPubMed
Sprenkle, C. “Warrant Prices as Indicators of Expectations and Preferences.” In The Random Character of Stock Market Prices, Cootner, P., ed., 412–474. Cambridge, MA: MIT Press (1964).Google Scholar
Stephan, J. A., and Whaley, R. E.. “Intraday Price Changes and Trading Volume Relations in the Stock and Slock Option Markets.” Journal of Finance, 45 (03 1990), 191–220.CrossRefGoogle Scholar
Stoll, H. R., and Whaley, R. E.. “The Dynamics of Stock Index and Stock Index Futures Returns.” Journal of Financial and Quantitative Analysis, 25 (12 1990), 441–468.CrossRefGoogle Scholar