|Title:||Options-implied information and the momentum cycle||Authors:||Liu, MY
Chuang Wen I
|Keywords:||Momentum stage; Options-implied information; Implied volatility spread and skew; Early-and late-stage momentum strategies; MARKET QUALITY; PRICE MOMENTUM; CROSS-SECTION; STOCK RETURNS; SHORT SALES; CONSTRAINTS; TRADERS; IMPACT; RISK||Issue Date:||2021||Publisher:||ELSEVIER||Journal Volume:||53||Source:||JOURNAL OF FINANCIAL MARKETS||Abstract:||
We employ options-implied information derived from implied volatility spreads and implied volatility skews to identify the momentum stage of stocks. We show that the early-stage (late-stage) momentum strategy of buying identified early-stage (late-stage) winners and selling identified early-stage (late-stage) losers outperforms (underperforms) the conventional momentum strategy of buying winners and selling losers across all momentum stages. We also find that the price momentum of the early-stage (late-stage) momentum strategy experiences slower (faster) reversal than that of the conventional momentum strategy. The outperformance of the early-stage momentum strategy comes primarily from the contribution of losers, as options-implied measures better place losers in their momentum stages than winners. Moreover, the identification ability of options-implied measures increases with the informativeness of the options market and, more importantly, is driven by their predictive information about a firm's fundamentals, particularly for profitability. Overall, our results indicate that options-implied information is useful in identifying the momentum stages of stocks.
|Appears in Collections:||財務金融學系|
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