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Do investors follow the herd in option markets?

Bernales, Alejandro and Verousis, Thanos and Voukelatos, Nikolaos (2016) 'Do investors follow the herd in option markets?' Journal of Banking and Finance. ISSN 0378-4266

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Abstract

We investigate the previously unexplored herding behaviour of investors in option markets, by examining equity option contracts traded in the US between 1996 and 2012. We document strong herding effects in option trading activity that are conditional on a set of systematic factors related to periods of market stress. More specifically, we find that option investors tend to herd during periods of high market volatility risk, on dates of macroeconomic announcements, during the financial crisis of 2008, when a large number of market option positions is either opened or closed, and during periods of a large average dispersion of analysts’ forecasts.

Item Type: Article
Uncontrolled Keywords: Herding, Cross-sectional dispersion, Options
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 15 Mar 2019 15:11
Last Modified: 15 Mar 2019 16:15
URI: http://repository.essex.ac.uk/id/eprint/24179

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