Dispersion in options investors’ versus analysts’ expectations: Predictive inference for stock returns

Panayiotis Andreou, Anastasios Kagkadis, Paulo Fraga Martins Maio, Dennis Philip

Forskningsoutput: TidskriftsbidragArtikelPeer review

Sammanfattning

We create a market-wide measure of dispersion in options investors’ expectations by aggregating across all stocks the dispersion in trading volume across moneynesses (DISP). DISP exhibits strong negative predictive power for future market returns and its information content is not subsumed by several alternative equity premium predictors. Consistent with the implications of theoretical models that link dispersion to overpricing, the predictive power of DISP is particularly pronounced in relatively optimistic periods. Although an aggregate analysts’ forecasts dispersion (AFD) measure also performs well in optimistic periods, it delivers insignificant overall predictability. This is because in the aftermath of the 2008 financial crisis, AFD was heavily driven by pessimistic forecasts and hence its increase did not reflect a true overpricing. As a result, AFD does not appear to be a robust equity premium predictor in recent years.
OriginalspråkEngelska
Referentgranskad vetenskaplig tidskriftCritical Finance Review
Volym10
Utgåva1
Sidor (från-till)65-81
Antal sidor17
ISSN2164-5744
DOI
StatusPublicerad - 01.04.2021
MoE-publikationstypA1 Originalartikel i en vetenskaplig tidskrift

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