STOCK RETURNS AND OPTION PRICES - AN EXPLORATORY-STUDY

This study is an investigation of estimates of expected stock returns implicit in option data. The Lee‐Rao‐Auchmuty option valuation model provides a unique opportunity to examine whether return measurements derived by nonlinear estimation techniques show any correlation with future stock returns. During the short period covered in this study, the Lee‐Rao‐Auchmuty estimates give preliminary indications that they are better predictors of actual stock returns than are estimates obtained from historical data. © The Southern Finance Association and the Southwestern Finance Association