Journal article
Stock Return Autocorrelations and Expected Option Returns
Abstract
We show that the return autocorrelation of underlying stock is an important determinant of expected equity option returns. Using an extended Black-Scholes model incorporating the presence of stock return autocorrelation, we demonstrate that expected returns of both call and put options are increasing in the return autocorrelation coefficient of the underlying stock. Consistent with this insight, we find strong empirical support in the …
Authors
Jeon Y; Kan R; Li G
Journal
Management Science, Vol. 71, No. 6, pp. 4895–4914
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Publication Date
June 2025
DOI
10.1287/mnsc.2023.03071
ISSN
0025-1909