Article published in the Journal of Financial Econometrics in 2024.
The article, Disagreement in Market Index Options, explores how investor disagreement about the future performance of the S&P 500 manifests in the options market, with a particular focus on the roles of moneyness and tenor.
Using high-frequency data analysis, I found that disagreement is minimal for options that are near the money and have short expirations, where outcomes are more predictable, but it spikes significantly for options that are far from the money or have longer expirations, which involve greater uncertainty and speculation.
Key Findings
This variation in disagreement is important because:
- It can signal potential market volatility—high disagreement often precedes price swings
- It enhances risk management by pinpointing areas of investor uncertainty
- It challenges the notion of fully efficient markets by demonstrating that investor opinions diverge in systematic, measurable ways