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Put-Call Parity and Expected Returns

Published online by Cambridge University Press:  06 April 2009

Thomas J. Finucane
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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

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