Option mispricing around nontrading periods

Christopher S. Jones, Joshua Shemesh

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We find that option returns are significantly lower over nontrading periods, the vast majority of which are weekends. Our evidence suggests that nontrading returns cannot be explained by risk, but rather are the result of widespread and highly persistent option mispricing driven by the incorrect treatment of stock return variance during periods of market closure. The size of the effect implies that the broad spectrum of finance research involving option prices should account for nontrading effects. Our study further suggests how alternative industry practices could improve the efficiency of option markets in a meaningful way.

Original languageEnglish
Pages (from-to)861-900
Number of pages40
JournalJournal of Finance
Volume73
Issue number2
DOIs
Publication statusPublished - 1 Apr 2018

Cite this

Jones, Christopher S. ; Shemesh, Joshua. / Option mispricing around nontrading periods. In: Journal of Finance. 2018 ; Vol. 73, No. 2. pp. 861-900.
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Option mispricing around nontrading periods. / Jones, Christopher S.; Shemesh, Joshua.

In: Journal of Finance, Vol. 73, No. 2, 01.04.2018, p. 861-900.

Research output: Contribution to journalArticleResearchpeer-review

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