Download or read book Why Do Option Prices Predict Stock Returns? The Role of Price Pressure in the Stock Market written by Luis Goncalves-Pinto and published by . This book was released on 2019 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: Stock and options markets can disagree about a stock's value because of informed trading in options and/or price pressure in the stock. The predictability of stock returns based on this cross- market discrepancy in values is especially strong when accompanied by stock price pressure, and it does not depend on trading in options. We argue that option-implied prices provide an anchor for fundamental stock values that helps to distinguish stock price movements due to pressure versus news. Overall, our results are consistent with stock price pressure being the primary driver of the option price-based stock return predictability.