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Stock Return Autocorrelations and Expected Option...
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