Option gamma and stock returns

Amar Soebhag*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


Stocks with high net gamma exposure systematically underperform stocks with low net gamma exposure. This effect is distinct from other well-known return predictors, and survives many robustness checks. We show that stocks with low net gamma exposure negatively predict future realized volatility, and argue that investors command a risk premium to hold low net gamma exposure stocks, which are riskier. Lastly, we show that the volatility predictability stems from a non-informational channel, and not from private information.

Original languageEnglish
Article number101442
JournalJournal of Empirical Finance
Publication statusPublished - Dec 2023

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