The interrelationships between the common stock and stock option markets are investigated in detail through the analysis of price changes and their interrelationships. Data on call option and underlying stock prices are obtained from the Berkeley Options data base for the time period January 1983 through September 1985. Two fundamental issues are investigated in a general analysis of returns rather than a specific analysis of price reactions to information events. The first analysis provides an indication of the lead/lag relationships between the two security markets through the similarity or dissimilarity of the return patterns. Observed stock returns and stock returns implied from call options prices, along with differences between these two series, are investigated for return seasonalities. Dummy variable regressions allow calculation of F statistics that test for differences in returns across trading days and intraday time intervals. Results indicate that there are significant differences in return patterns between observed and implied stock prices. Overnight implied stock returns are slightly larger and do not exhibit the negative weekend effect found in observed stock prices, and observed returns are larger than implied returns early in the trading day. The second issue addressed is that of intermarket efficiency: are profits associated with the lead/lag, relationships identified in the first analysis? Two trading strategies are tested, one assuming that implied stock prices lead observed stock prices and one assuming observed stock prices lead implied stock prices. Several execution lag/holding period combinations provide results indicating that positive profits exist only to the overnight holding periods for the rule that assumes stock price lead implied stock prices. The results of both analyses are consistent with the conjecture that the stock market leads the option market. / Source: Dissertation Abstracts International, Volume: 51-09, Section: A, page: 3167. / Major Professor: David R. Peterson. / Thesis (Ph.D.)--The Florida State University, 1990.
| Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_78294 |
| Contributors | Gunter, Melody Joy., Florida State University |
| Source Sets | Florida State University |
| Language | English |
| Detected Language | English |
| Type | Text |
| Format | 172 p. |
| Rights | On campus use only. |
| Relation | Dissertation Abstracts International |
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