Download or read book The Information Content of Option Prices Regarding Future Stock Return Serial Correlation written by Scott Murray and published by . This book was released on 2014 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: I investigate the relation between option prices and daily stock return serial correlation. I demonstrate that the variance ratio, calculated as the ratio of realized to implied stock return variance, has both a contemporaneous and predictive relation with stock return serial correlation. The ability of the variance ratio to predict future stock return serial correlation gives rise to a daily trading strategy that implements reversal trading on stocks predicted to exhibit large negative serial correlation and momentum trading on stocks with high predicted serial correlation. The trading strategy generates risk-adjusted returns in excess of 6.5% per year.