Leveraging a call-put ratio as a trading signal |
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Authors: | Patrick Houlihan |
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Affiliation: | Stevens Institute of Technology, Hoboken, NJ, USA |
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Abstract: | We examine whether a put-call ratio, derived from a unique set of market data, can be used to predict directional moves in asset prices during various market conditions between March 2005 and December 2012. Our findings show: (1) specific market participant's options trading volume is a predecessor to asset price movements, and (2) portfolios based on the put-call ratio adjusted for four factors Carhart model and transaction costs exhibit abnormal excess returns. |
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Keywords: | Anomalies in prices Portfolio management Technical trading Financial forecasting Investment management Options Behavioral finance |
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