Working papers

In the Money? Option betting beyond lottery payoffs

Presentations: NFA 2024, MIT GCFP’s 11th Annual Conference 2024, SFA 2024

Retail options trading has grown significantly in recent years, yet little is known about how unsophisticated investors trade contracts across differing levels of leverage. Using a comprehensive equity options database, I show that a substantial share of the total dollar investment by individual customers trading fewer than 100 contracts per day is concentrated in low-leverage In-the-Money (ITM) options, followed by high-leverage Out-of-the-Money (OTM) options. This pattern challenges the conventional view that retail traders primarily seek lottery-like OTM contracts. Instead, ITM activity is concentrated in short-term call options on high-priced stocks, which investors perceive as as a cost-effective way to gain exposure to expensive stocks and offering smaller but more consistent payoffs. Such behavior aligns with investors’ cash constraints and risk tolerance, even though it results in generalized losses.

Social Media and the Distortion of Price Revelation

With Charles Martineau and Jordi Mondria

Presentations: Future of Financial Information Conference 2023, Transatlantic Doctoral Conference London Business School 2023, Northern Finance Association Annual Meeting 2023, Midwest Finance Association Annual Meeting 2024, FMA 2024.

Media attention: Rotman Insights Hub.

Social media attention before earnings announcements is overly optimistic, fails to predict fundamentals, and generates buying pressure, leading to a 58 bps stock return as intermediaries seek higher returns for providing liquidity. Such price pressure distorts price informativeness ahead of announcements. A return reversal occurs immediately following announcements as markets correct mispricing. How stock prices respond to earning news is endogenous to the effect of social media in the pre-announcement price formation. A pre-announcement trading strategy based on expected social media attention yields 40 bps monthly alphas. Social media activity leads to predictable upward price pressure ahead of scheduled announcements, diminishing the informational content of stock prices.

Work in process

Option trading and price efficiency

With Charles Martineau

Building on the findings of my job market paper, this study examines the implications of retail option trading for asset prices. Specifically, we analyze the motivations and behaviors of retail investors in both the equity and options markets leading up to earnings announcements, and investigate how this activity impacts stock prices and, consequently, price efficiency. While previous literature has shown that option trading has an impact on stock prices volatility, our objective is to assess its specific implications for price efficiency. Analyzing this around earnings announcements is important, as our previous work shows that retail investor attention intensifies in the days leading up to these events, often resulting in directional trading that undermines price efficiency.

Pre Ph.D. research

When fear of floating meets the Taylor Rule. Recent evidence from Latin America

Advisor Charles Calomiris

This thesis aims to find evidence of the “fear of floating” in three Latin American countries: Mexico, Chile, and Brazil. By considering the role of the exchange rate in their monetary policy and describing it as an augmented forward-looking Taylor Rule with interest rate smoothing. If the Taylor Rule does not describe the behavior of their target rates, then evidence of “fear of floating” will be found.

Monitoring of fast-paced electronic markets

Bank of International Settlements Sep 2018, Study Group established by the Markets Committee

This report presents the Group’s findings. Among other sources, it is based on information from structured interviews with market participants, a Markets Committee workshop in January 2018, and a survey of central banks’ current and planned initiatives in market monitoring. The report highlights key recent developments in market structure, includes statistics on notable trends, and outlines the priorities and approaches of central banks in undertaking near-time and medium-term market monitoring.

Mercado cambiario en México: Operación del peso mexicano y otras divisas a través de plataformas electrónicas

Comité del Mercado Cambiario Mexicano May 2017