My recent research focuses on understanding how investors’ demand pressures alter inventory risk management strategies of market makers in the equity options market.

Derivatives, unlike stocks, are in zero net supply. Thus, positive or negative demand pressures, and inability to hedge perfectly, can lead to various deviations from model-implied prices. These deviations are non-trivial and result in different qualities of executions depending on what time of a day you trade. I am currently working with LiveVol/CBOE to attract attention of academics and industry practitioners about the importance of using intra-day trading equity options data rather than end-of-day closing prices.

There is no agreement yet in the literature about the effect of investors’ disagreement about cash flow news on future stock returns. High investors’ disagreement has been shown to either negatively or positively predict stock returns. We show empirically, for the first time, that both, positive and negative effects co-exist. The sign depends on the positive vs negative information about cash flow news, and the absence of short-sale constraints.