This article examines trading behavior in the options market conditioned on mispricing in the underlying stock. We investigate the price equilibrium between the observed equity asset and the options-implied synthetic share as well as the relative divergence between the two prices. We find a...

Motivated by the nature of asset pricing models, we investigate the cross-sectional relation between the market's ex-ante view of a stock's risk and the stock's ex-ante expected return. We demonstrate that an ex-ante measure of expected returns based on analyst price targets is highly related to...

Motivated by the growing literature on options as non-redundant assets, we investigate how option trading impacts underlying stock prices in the cross section controlling for stock market activities. We find both option trades and quotes are able to predict future stock price movement but stock...

After executing option orders, options market makers turn to the stock market to hedge away the underlying stock exposure. As a result, the stock exposure imbalance in option transactions translates into an imbalance in stock transactions. This paper decomposes the total stock order imbalance...

Conventional wisdom suggests underpricing of synthetic stocks due to short-sale constraints and voting premiums. This study finds that such underpricing of mid quote point disappears once arbitrageurs face security borrowing costs. Rather, synthetic bid and ask prices predominantly contain...