The Relation between Liquidity of Individual Stock Options and Underlying Assets Returns

• Main Authors: Ping-Yeh Su, 蘇品曄
• Other Authors: Jun-Biao Lin
• Format: Others
• Language: zh-TW
• Published: 2013
• Online Access: http://ndltd.ncl.edu.tw/handle/91716773137858735744

碩士 === 國立高雄第一科技大學 === 金融研究所 === 101 === This study investigates whether liquidity and idiosyncratic volatility play an important role in determining stock returns by using Ordinary Least Squares method. Several theories show that stock options may contain more information than underlying stocks. Therefore, this study uses stock options as a liquidity measure, and also controls several variables, such as idiosyncratic volatility and firm size. The idiosyncratic volatility is estimated by the standard deviation of the residuals from the three factor model of Fama and French(1993). At last, using monthly data, this study shows that high idiosyncratic volatility firms produce higher returns and firm size is negatively correlated with stock returns because of the size effect. However, call options and put options imply different signals. Stock returns are increasing with the level of call options and decreasing in put options.