Research: Mispricing, short-sale constraints and the cross-section of option returns | Weatherhead School at Case Western Reserve University

Research: Mispricing, short-sale constraints and the cross-section of option returns

Posted 6.1.2021

Research: Mispricing, short-sale constraints and the cross-section of option returns

Lakshmi Shankar Ramachandran, assistant professor of banking and finance, published new research in the Journal of Financial Economics on pricing of options.

Shankar and his co-author establish that investors use put options to express their views on overpriced stocks that face severe constraints in the short-selling market. This additional demand makes these options more expensive; expectedly, these options witness lower returns in the future. The authors conclude that their results are consistent with the emergent view that in imperfect markets, option prices are affected by supply and demand considerations.

See the full research.


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