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Market moves and the information content of option prices

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  • McIntyre, Michael L.
  • Jackson, David

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.

Suggested Citation

  • McIntyre, Michael L. & Jackson, David, 2009. "Market moves and the information content of option prices," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 327-340, March.
    • Handle: RePEc:eee:reveco:v:18:y:2009:i:2:p:327-340
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    References listed on IDEAS

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    Cited by:

    1. Chen, Carl R. & Diltz, J. David & Huang, Ying & Lung, Peter P., 2011. "Stock and option market divergence in the presence of noisy information," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2001-2020, August.
    2. Tzang, Shyh-Weir & Wang, Chou-Wen & Yu, Min-Teh, 2016. "Systematic risk and volatility skew," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 72-87.
    3. Chen, Son-Nan & Hsu, Pao-Peng, 2018. "Pricing and hedging barrier options under a Markov-modulated double exponential jump diffusion-CIR model," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 330-346.

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