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Option-implied information and stock herding

Voukelatos, Nikolaos
Verousis, Thanos
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Publication Type
Journal article with impact factor
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Supervisor
Publication Year
2019
Journal
International Journal of Finance and Economics
Book
Publication Volume
24
Publication Issue
4
Publication Begin page
1429
Publication End page
1442
Publication Number of pages
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Abstract
In this paper, we examine if herding behaviour in the equity market can be explained by option-implied information. Our empirical results confirm the commonly reported absence of herding as a general tendency in the U.S. equity market. However, we find evidence of significant herding behaviour during periods when option-implied information reflects a pessimistic view about the future prospects of the equity market. More specifically, we find that individual stock returns tend to cluster more closely around the market consensus during days of high implied index volatility, more pronounced negative implied skewness, and higher trading volume in index puts.
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Keywords
Herding, Cross-Sectional Dispersion, Options, Market Stress
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