Pontificia Universidad Católica de Chile Pontificia Universidad Católica de Chile
Bernales A., Cortázar G., Salamunic L. and Skiadopoulos G. (2020)

Learning and Index Option Returns

Revista : Journal of Business & Economic Statistics
Volumen : 38
Número : 2
Páginas : 327-339
Tipo de publicación : ISI Ir a publicación


Little is known about the economic sources that may generate the abnormal returns observed in put index options. We show that the learning process followed by investors may be one such source. We develop an equilibrium model under partial information in which a rational Bayesian learner prices put option contracts. Our model generates put option returns similar to the empirical returns of S&P 500 put index options. This result is not obtained when we analyse alternative setups of the model in which no learning process exists.