The Stock Price Momentum and Stock Price Reversals Revealed by Call Options

2006 ◽  
Author(s):  
Garry J. Twite ◽  
Greg Clinch ◽  
John D. Lyon
Keyword(s):  
Stock Price ◽  
Call Options ◽  
Price Momentum

scholarly journals OPTIONS WRITTEN ON STOCKS WITH KNOWN DIVIDENDS

2004 ◽  
Vol 07 (07) ◽  
pp. 901-907
Author(s):  
ERIK EKSTRÖM ◽  
JOHAN TYSK
Keyword(s):  
Stock Price ◽  
Option Price ◽  
Option Prices ◽  
Strike Price ◽  
Call Options ◽  
Alternative Approach ◽  
Black Scholes ◽  
Market Practice ◽  
The Difference ◽  
Risk Free Rate

There are two common methods for pricing European call options on a stock with known dividends. The market practice is to use the Black–Scholes formula with the stock price reduced by the present value of the dividends. An alternative approach is to increase the strike price with the dividends compounded to expiry at the risk-free rate. These methods correspond to different stock price models and thus in general give different option prices. In the present paper we generalize these methods to time- and level-dependent volatilities and to arbitrary contract functions. We show, for convex contract functions and under very general conditions on the volatility, that the method which is market practice gives the lower option price. For call options and some other common contracts we find bounds for the difference between the two prices in the case of constant volatility.

Does Analyst Optimism Fuel Stock Price Momentum?

2022 ◽  
pp. 1-17
Author(s):  
Jimmy Lockwood ◽  
Larry Lockwood ◽  
Hong Miao ◽  
Mohammad Riaz Uddin ◽  
Keming Li
Keyword(s):  
Stock Price ◽  
Price Momentum ◽  
Analyst Optimism

Decoupling stock price momentum from accounting fundamentals

2020 ◽  
Vol 32 (4) ◽  
pp. 519-541
Author(s):  
Irfan Safdar
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Momentum Effect ◽  
Complete Understanding ◽  
Delayed Reaction ◽  
Content Type ◽  
Price Momentum ◽  
Price Performance ◽  
The Us ◽  
Term Performance

Purpose What explains patterns in stock prices is an important question. One such pattern, price momentum, is a well-known capital markets anomaly where recent stock price performance appears to continue into the future. This momentum is frequently thought to reflect delayed reaction by investors to unspecified information (i.e. underreaction). This study aims to provide a useful insight regarding momentum: potential mispricing related to accounting fundamentals appears to conceal longer-term reversals in price momentum. Controlling for these fundamentals reveals that price momentum reverses, indicating that investor overreaction is a potentially important source of stock price momentum. The evidence presented in this study emphasizes the importance of decoupling momentum and accounting fundamentals to achieve a more complete understanding of what explains stock price momentum. Design/methodology/approach This study explores this question by examining the longer-term performance of momentum stocks in the US market after decoupling it from performance related to accounting fundamentals using returns to fundamentals-based factors as controls in time series regressions. Findings This study finds evidence of clear reversals in the remaining price momentum. These reversals provide a new insight into the momentum effect because they imply that the component of price momentum not traceable to accounting fundamentals reflects investor overreaction rather than underreaction. Originality/value The findings indicate that the underlying nature of the information driving price movements is important to achieving a complete understanding of what explains price momentum. To the best of the author’s knowledge, no other study has examined the behavior of stock price momentum while controlling for accounting fundamentals.

Firm Expansion and Stock Price Momentum*

2013 ◽  
Vol 18 (4) ◽  
pp. 1465-1505 ◽  
Author(s):  
Peter Nyberg ◽  
Salla Pöyry
Keyword(s):  
Stock Price ◽  
Price Momentum

scholarly journals Factor momentum, option-implied volatility scaling, and investor sentiment

2021 ◽  
Author(s):  
Klaus Grobys ◽  
James W. Kolari ◽  
Jere Rutanen
Keyword(s):  
Stock Price ◽  
Implied Volatility ◽  
Statistical Significance ◽  
Investor Sentiment ◽  
Earnings Announcement ◽  
Price Momentum ◽  
Post Earnings Announcement Drift

AbstractFactor momentum produces robust average returns that exhibit a similar economic magnitude as stock price momentum. To the extent that the post-earnings announcement drift (PEAD) factor captures mispricing, winner factors earn profits from being long on underpriced stocks and short on overpriced stocks. Conversely, loser-factors’ negative exposure to the PEAD factor suggests that loser factors capture mispricing by being long on overpriced stocks and short on underpriced stocks. Option-implied volatility scaling increases both the economic magnitude and statistical significance of factor momentum. Factor momentum is not exposed to the same crashes as stock price momentum and therefore could provide a hedge for stock price momentum crash risks. Also, factor momentum mispricing is more pronounced when investor sentiment is high.

scholarly journals Institutional Investment Constraints and Stock Prices

2017 ◽  
Vol 52 (2) ◽  
pp. 465-489 ◽  
Author(s):  
Jie Cao ◽  
Bing Han ◽  
Qinghai Wang
Keyword(s):  
Portfolio Management ◽  
Stock Prices ◽  
Stock Price ◽  
Bad News ◽  
Good News ◽  
Stock Return Predictability ◽  
Institutional Investment ◽  
Price Momentum ◽  
The Impact ◽  
Investment Constraints

We test the hypothesis that investment constraints in delegated portfolio management may distort demand for stocks, leading to price underreaction to news and stock return predictability. We find that institutions tend not to buy more of a stock with good news that they already overweight; they are reluctant to sell a stock with bad news that they already underweight. Stocks with good news overweighted by institutions subsequently significantly outperform stocks with bad news underweighted by institutions. The impact of institutional investment constraints sheds new light on asset pricing anomalies such as stock price momentum and post–earnings announcement drift.

scholarly journals How Well the Implementation of Carhart Model in Market Overreaction Condition? Evidence in Indonesia Stock Exchange

2018 ◽  
Vol 7 (4.38) ◽  
pp. 928
Author(s):  
Ferikawita M. Sembiring ◽  
. .
Keyword(s):  
Stock Price ◽  
Factor Model ◽  
Stock Exchange ◽  
Market Condition ◽  
Portfolio Returns ◽  
Price Momentum ◽  
Book To Market Ratio ◽  
The Difference ◽  
Fama And French ◽  
Portfolio Return

This study aims to determine an ability of the four-factor model of Carhart in explaining the portfolio returns formed in condition of market overreaction. The four-factor model is basically a model proposed by Fama and French and then developed by Carhart which adds price momentum factor into the model. While market overreaction is a market condition caused by excessive reactions from investors when receiving information. The portfolios used are the winner and loser formed based on the returns of each portfolio to the average of the returns. Both portfolio consist are the stocks of non-financial sector in Indonesia Stock Exchange during the period July 2005 - December 2015. The data used are the Composite Stock Price Index (CSPI), stock market capitalization, book to market ratio of each shares and the difference of returns of the loser over of the winner, as an indicator of price momentum factor that formed in market overreaction condition characterized by occurance the reversal of returns.The results show that the four-factor model can explain the portfolio return well. Implementation of the GARCH (1,1) model to improve the accuracy of the estimation results also shows similar findings.     

Analyst Recommendations and Stock Price Momentum

2012 ◽  
Author(s):  
Keming Li ◽  
Larry J. Lockwood ◽  
Mohammad Riaz Uddin
Keyword(s):  
Stock Price ◽  
Analyst Recommendations ◽  
Price Momentum
Sign in / Sign up

Export Citation Format

Share Document