Academy of Mathematics and Systems Science, CAS
Colloquia & Seminars

Speaker:	韩冰教授, 加拿大多伦多大学罗特曼管理学院
Inviter:	洪永淼研究员
Title:	Forecasting Option Returns with News
Language:	English
Time & Venue:	2023.05.30 10:00-11:00 南楼202
Abstract:	This paper investigates whether text data contains useful information about the cross-section of expected equity option returns. We apply both lexicon-based and machine learning approaches to extract qualitative signals from over six million news articles. The machine learning methods outperform lexicon-based approaches in predicting delta-hedged option returns and generate sizable profits. Our results are robust after controlling for known option return predictors including volatility-related variables and various underlying stock characteristics. An analysis of the keywords identified by machine learning methods suggests the option return predictability is largely related to firm-specific sentiment and option mispricing. Our work highlights the importance of analyzing unstructured data like texts for pricing derivatives.