Tests of the Information Content of Derivatives Prices

Download or read book Tests of the Information Content of Derivatives Prices written by Cliff Moll and published by . This book was released on 2010 with total page 114 pages. Available in PDF, EPUB and Kindle. Book excerpt: ABSTRACT: In Chapter 2, we use a sample of firms with actively traded single stock futures (SSF) to examine the information content of implied risk premiums embedded in SSF and option prices for future stock and portfolio returns. We believe this to be the first comprehensive study relating embedded risk premiums in cost-of-carry and put-call parity deviations to future stock returns. In addition, we test the possibility of a maturity dependent relation between the embedded risk premia and future returns. Overall, our results indicate that investors cannot profit from perceived mispricings in the SSF and option markets. The absence of a consistent relation between the implied risk premia and future returns implies that SSF and option markets are efficient in that any perceived mispricings in the SSF or option markets cannot be used to forecast future equity returns.