Date of Graduation
Spring 2014
Document Type
Thesis
Degree Name
Master of Arts in Economics
Department/Program
Economics
First Advisor
Prof. Veitch
Second Advisor
Prof. Lau
Third Advisor
Prof. Wong
Abstract
This paper uses regression analysis to examine the relationship between today's implied volatility on AMD stock options with tomorrow's return on the underlying. An economic analyis of the options markets' micro-structure is discussed to establish the intuition and the basis behind the relationship. Four seperate models are developed to examine its statistical significance and the ability of options' prices to accurately forecast returns on the underlying security.
The hypothesis of the paper is that daily changes in implied volatility can be used to earn higher than expected returns on the underlying stock. I find that implied volatility can be used to increase forecasting accuracy and may proved a means by which the Efficient Markets Hypothesis can be refuted.
Recommended Citation
Sampson, Thomas W., "Forecasting Short-Term Stock Returns Using Irregular Pricing Behavior in the Options Market" (2014). Master's Theses. 81.
https://repository.usfca.edu/thes/81
