Stock Option Returns, a Puzzle

Under very weak assumptions, the expected returns of European call options must be positive and increasing in the strike price. This paper investigates the returns to call options on individual stocks that do not have an ex-dividend day prior to expiration. The main findings are that over the 1996 to 2005 period (1) out-of-the-money calls have negative average returns, and (2) the average returns of high strike calls are lower than those of low strike calls. The puzzling returns are robust to a number of variations in methodology, and are not due to a 'peso' problem. Finally, preliminary evidence is presented that is consistent with investor risk-seeking contributing to the puzzling call returns.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Finance

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2015

Author dc:creator

• Ni, Xiaoyan

Contributors dc:contributor

• Poteshman, Allen M.

• Economics, Finance

Language dc:language

eng

Identifier

(MiAaPQ)AAI3269992

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/87438