Soebhag, A. (2023). Option gamma and stock returns Journal of Empirical Finance, 74.
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Affiliated author
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Publication year2023
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JournalJournal of Empirical Finance
Stocks with high net gamma exposure systematically underperform stocks with low net gamma exposure. This effect is distinct from other well-known return predictors, and survives many robustness checks. We show that stocks with low net gamma exposure negatively predict future realized volatility, and argue that investors command a risk premium to hold low net gamma exposure stocks, which are riskier. Lastly, we show that the volatility predictability stems from a non-informational channel, and not from private information.