Market moves and the information content of option prices |
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| Authors: | Michael L McIntyre David Jackson |
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| Institution: | 1. Department of Finance, Ocean University of China, China;2. Department of Accounting and Information, Ling Tung University, Taiwan;3. Department of Finance, Feng Chia University, Taiwan;1. School of Contemporary Chinese Studies, University of Nottingham, Jubilee Campus, Wollaton Road, Nottingham G8 1BB, UK;2. Department of Economics, University of Bath, Claverton Down, Bath BA2 7AY, UK;3. Department of Economics, University Jaume I, Avda. Sos Baynat s/n, 12071, Castellón, Spain |
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| Abstract: | In this paper we estimate risk-neutral returns distributions using the prices of options written on S&P 500 index futures and investigate whether or not specific characteristics of the returns distributions might be useful information for the purpose of predicting changes in market direction. The key distributional characteristics we focus on are skewness, kurtosis, and the probability weight in the extreme tails of the implied risk-neutral returns distributions. We find that, with one possible exception, the characteristics we considered are unlikely to improve a trader's ability to predict market moves. |
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