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Put–Call Ratio Volume vs. Open Interest in Predicting Market Return: A Frequency Domain Rolling Causality Analysis

Author

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  • Sangram Keshari Jena

    (Department of Finance, IBS Hyderabad, IFHE University, Hyderabad 501203, India)

  • Aviral Kumar Tiwari

    (Department of Finance, Control and Law, Montepellier Business School, 34000 Montepelllier, France)

  • Amarnath Mitra

    (Department of Operations and Quantitative Methods, International Management Institute, New Delhi 110016, India)

Abstract

This study examined the efficacy of the Put–Call Ratio (PCR), a widely used information ratio measured in terms of volume and open interest, in predicting market return at different time scale. Volume PCR was found to be an efficient predictor of the market return in a short period of 2.5 days and open interest PCR in a long period of 12 days. Thus, traders and portfolio managers should use the appropriate PCR depending upon the time horizon of their trade and investment. The results are robust even after controlling for the information generated from the futures market.

Suggested Citation

  • Sangram Keshari Jena & Aviral Kumar Tiwari & Amarnath Mitra, 2019. "Put–Call Ratio Volume vs. Open Interest in Predicting Market Return: A Frequency Domain Rolling Causality Analysis," Economies, MDPI, vol. 7(1), pages 1-10, March.
    • Handle: RePEc:gam:jecomi:v:7:y:2019:i:1:p:24-:d:217055
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    References listed on IDEAS

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    3. Umar, Zaghum & Gubareva, Mariya & Yousaf, Imran & Ali, Shoaib, 2021. "A tale of company fundamentals vs sentiment driven pricing: The case of GameStop," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).

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