Do option traders on value and growth stocks react differently to new information?

Do option traders on value and growth stocks react differently to new information? This study compares the changes in implied volatilities of options on Nasdaq 100 and Russell 2000 value and growth portfolios, for the time period of 2004 and 2005. Following the methodologies in Stein (J Finance 44:1011–1024, 1989) and Heynen et al. (J Financ Quant Anal 29:31–56, 1994), we attempt to infer whether there are systematic differences in the degree of overreactions between value and growth options. The empirical evidence indicates that the reactions to information by investors in growth options, as proxied by options on Nasdaq 100 and Russell 2000 growth, are stronger than those of Russell 2000 value. Whether these reactions can be considered as overreacting, however, is not entirely conclusive. Nevertheless, the results imply that difference in investors’ behavior and styles is one potential explanation for the value stock effect. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Do option traders on value and growth stocks react differently to new information?

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Publisher
Springer US
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-009-0134-y
Publisher site
See Article on Publisher Site

Abstract

This study compares the changes in implied volatilities of options on Nasdaq 100 and Russell 2000 value and growth portfolios, for the time period of 2004 and 2005. Following the methodologies in Stein (J Finance 44:1011–1024, 1989) and Heynen et al. (J Financ Quant Anal 29:31–56, 1994), we attempt to infer whether there are systematic differences in the degree of overreactions between value and growth options. The empirical evidence indicates that the reactions to information by investors in growth options, as proxied by options on Nasdaq 100 and Russell 2000 growth, are stronger than those of Russell 2000 value. Whether these reactions can be considered as overreacting, however, is not entirely conclusive. Nevertheless, the results imply that difference in investors’ behavior and styles is one potential explanation for the value stock effect.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jun 20, 2009

References

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