Title:Option Implied Volatility-Volume Indicator and Predictability of Stock Returns

Speaker:Dr. Jian Chen, Associate professor , University of Xiamen

Host:Lin Huang, Associate professor, RIEM

Time:Nov. 4, Friday,14:00-15:30, Jian Chen;15:30-16:30, Pengcheng Du

Venue: Yide building H503, Liulin Campus

Abstract: In this paper, he find that option implied volatility and option trading volume have complementary predictive power for underlying returns, and the predictability depends on financial intermediary constraints. The results show that the volatility measure has stronger predictability than the volume measure when financial intermediary constraint is loose. On the contrary, the volume measure has stronger predictability than volatility in the presence of tight intermediary constraint. Based on the findings, he propose an option implied volatility-volume indicator, which aggregates the information content in option implied volatility and option trading volume together. The volatility-volume indicator greatly improves the predictability based on individual volatility or volume measures, and most importantly, the indicator can provide substantially strong and stable predictive power over time.