Dr Nikolaos Voukelatos, Senior Lecturer in Finance at Kent Business School, has co-authored a research paper published in the Journal of Financial Markets.
The paper, titled “Equity premium prediction: The role of information from the options market”, explores whether information embedded in option prices can help forecast the equity market.
The paper looks at a set of benchmark strategies that involve trading equity options on the Chicago Board Options Exchange. The findings demonstrate that using information from the options market can result in substantial gains when trying to predict the underlying equity market. Incorporating information option benchmark strategies in standard forecasting models leads to a fivefold increase in an investor’s gains when forecasting the S&P500.
The full paper can be read on the ScienceDirect website.