Volume · Johnson and So (2012)
Option-to-Stock Volume Ratio
Total monthly option trading volume across puts and calls divided by monthly stock trading volume. Long low minus short high quintile portfolio of stocks above the NYSE 20th size percentile, value-weighted, re-sorted monthly, hedged each month with a rolling 5-year market beta from prior months only (β = −0.08 at the end of the sample). Quarterly, 1999Q2 to 2023Q3.
Predicted alphareturn · posterior mean, % per year, averaged over the window
Next quarter
2027Q1
−0.52%
95% interval −5.39% to 5.28%
Next year
2027Q1–2027Q4
−0.42%
95% interval −5.37% to 5.36%
Next five years
2027Q1–2031Q4
<0.01%
95% interval −5.26% to 5.68%
Forecast made 1 Oct 2026, conditioning on this portfolio's returns, which end 2023Q3 with Open Source Asset Pricing's data for the signal (OptionVolume1). The 13 quarters between then and 2027Q1 are unobserved and are integrated out under the model.
Portfolio
Market hedge
Prior beliefsDefault
Half life of shocks to the edge
How long an edge lasts once it appears. The model treats the edge -- the
expected alpha under a market hedge, the expected return without one -- as a
mean-reverting state; this is the prior on its half-life. A short half-life
pulls the forecast back toward the long-run mean quickly, so recent performance
counts for less.
Short U(0, 5 years)Default U(0, 10 years)Long U(0, 20 years)
Long-run performance
How much long-run edge the model is willing to believe in before the data
insists on it. The prior on the portfolio's annualized risk-adjusted return (its
information ratio under a hedge, Sharpe ratio without one) is centred on zero;
this is its width. A narrow prior takes more evidence to move,
so every forecast is pulled harder toward zero.
Skeptical N(0, 0.2²)Default N(0, 0.4²)Permissive N(0, 0.6²)
Time variation in risk-adjusted returns
How far an edge swings around its long-run level. The previous row sets how
large that long-run level may be; this one sets how much the portfolio's
risk-adjusted return wanders above and below it from quarter to quarter. Allow
more, and a good or bad run reads as news about the edge rather than as noise.
Conservative U(0, 0.25)Default U(0, 0.5)Aggressive U(0, 0.75)
Quintile and decile portfolios are sorted each month over common stocks on the NYSE, AMEX and Nasdaq whose market value is above the NYSE 20th percentile, with breakpoints computed over those same stocks, so every signal is measured on one universe. Original paper is Open Source Asset Pricing's replication of the paper's own portfolio, with its sort, weighting, stock screens and rebalancing.
Cumulative market-hedged returnreturn, unhedged
+105% since 1999Q2 · log scale
Past performance, annualized
| Window | AlphaReturn | Vol. | Info. ratioSharpe ratio | t-stat |
|---|---|---|---|---|
| 1999Q2–2023Q3 | 3.65% | 11.96% | 0.30 | 1.51 |
| 2018Q4–2023Q3 | −6.63% | 10.88% | −0.61 | −1.36 |
| 2022Q4–2023Q3 | −12.58% | 11.68% | −1.08 | −1.08 |
| 1999Q2–2023Q3 | 5.74% | 13.38% | 0.43 | 2.12 |
| 2018Q4–2023Q3 | −0.37% | 14.40% | −0.03 | −0.06 |
| 2022Q4–2023Q3 | −1.78% | 10.98% | −0.16 | −0.16 |
| 1999Q2–2023Q3 | 4.59% | 14.98% | 0.31 | 1.52 |
| 2018Q4–2023Q3 | −8.39% | 15.09% | −0.56 | −1.24 |
| 2022Q4–2023Q3 | −19.51% | 17.86% | −1.09 | −1.09 |
| 1999Q2–2023Q3 | 6.48% | 16.16% | 0.40 | 1.98 |
| 2018Q4–2023Q3 | −2.13% | 18.72% | −0.11 | −0.25 |
| 2022Q4–2023Q3 | −8.42% | 16.59% | −0.51 | −0.51 |
| 1999Q2–2023Q3 | 6.24% | 13.03% | 0.48 | 2.37 |
| 2018Q4–2023Q3 | −0.52% | 12.25% | −0.04 | −0.10 |
| 2022Q4–2023Q3 | −1.76% | 7.20% | −0.24 | −0.24 |
| 1996Q2–2023Q3 | 3.28% | 12.31% | 0.27 | 1.40 |
| 2018Q4–2023Q3 | −4.37% | 10.89% | −0.40 | −0.90 |
| 2022Q4–2023Q3 | −10.90% | 11.57% | −0.94 | −0.94 |
| 1996Q2–2023Q3 | 7.11% | 13.69% | 0.52 | 2.72 |
| 2018Q4–2023Q3 | 1.60% | 13.74% | 0.12 | 0.26 |
| 2022Q4–2023Q3 | 0.16% | 10.98% | 0.01 | 0.01 |
| 1996Q2–2023Q3 | 4.70% | 15.31% | 0.31 | 1.61 |
| 2018Q4–2023Q3 | −5.42% | 15.25% | −0.36 | −0.79 |
| 2022Q4–2023Q3 | −17.20% | 17.68% | −0.97 | −0.97 |
| 1996Q2–2023Q3 | 8.36% | 16.38% | 0.51 | 2.68 |
| 2018Q4–2023Q3 | 0.14% | 17.87% | 0.01 | 0.02 |
| 2022Q4–2023Q3 | −6.52% | 16.20% | −0.40 | −0.40 |
| 1996Q2–2023Q3 | 7.56% | 13.17% | 0.57 | 3.01 |
| 2018Q4–2023Q3 | 1.00% | 11.87% | 0.08 | 0.19 |
| 2022Q4–2023Q3 | −0.40% | 7.17% | −0.06 | −0.06 |
| 1996Q2–2023Q3 | 1.51% | 12.98% | 0.12 | 0.61 |
| 2018Q4–2023Q3 | −6.36% | 10.82% | −0.59 | −1.31 |
| 2022Q4–2023Q3 | −14.20% | 11.71% | −1.21 | −1.21 |
| 1996Q2–2023Q3 | 4.52% | 15.15% | 0.30 | 1.56 |
| 2018Q4–2023Q3 | −1.24% | 15.12% | −0.08 | −0.18 |
| 2022Q4–2023Q3 | −4.99% | 11.20% | −0.45 | −0.45 |
| 1996Q2–2023Q3 | 2.07% | 16.41% | 0.13 | 0.66 |
| 2018Q4–2023Q3 | −8.35% | 15.16% | −0.55 | −1.23 |
| 2022Q4–2023Q3 | −21.98% | 17.95% | −1.22 | −1.22 |
| 1996Q2–2023Q3 | 5.25% | 18.21% | 0.29 | 1.51 |
| 2018Q4–2023Q3 | −3.20% | 19.93% | −0.16 | −0.36 |
| 2022Q4–2023Q3 | −12.52% | 17.47% | −0.72 | −0.72 |
| 1996Q2–2023Q3 | 5.81% | 13.75% | 0.42 | 2.22 |
| 2018Q4–2023Q3 | −0.93% | 12.43% | −0.07 | −0.17 |
| 2022Q4–2023Q3 | −3.79% | 7.58% | −0.50 | −0.50 |
Forecast information ratioSharpe ratio, annualized
| Window | Mean | 95% interval | P(neg) |
|---|---|---|---|
| 2027Q1 | −0.04 | −0.46 – 0.44 | 0.60 |
| 2027Q1–2027Q4 | −0.03 | −0.41 – 0.43 | 0.58 |
| 2027Q1–2031Q4 | 0.02 | −0.29 – 0.42 | 0.51 |
| Prior changed from site default. | |||
| 2027Q1 | 0.26 | −0.11 – 0.64 | 0.08 |
| 2027Q1–2027Q4 | 0.26 | −0.11 – 0.63 | 0.09 |
| 2027Q1–2031Q4 | 0.24 | −0.10 – 0.62 | 0.09 |
| Prior changed from site default. | |||
| 2027Q1 | −0.02 | −0.45 – 0.47 | 0.54 |
| 2027Q1–2027Q4 | −<0.01 | −0.40 – 0.47 | 0.53 |
| 2027Q1–2031Q4 | 0.04 | −0.28 – 0.46 | 0.46 |
| Prior changed from site default. | |||
| 2027Q1 | 0.24 | −0.13 – 0.62 | 0.11 |
| 2027Q1–2027Q4 | 0.24 | −0.13 – 0.62 | 0.11 |
| 2027Q1–2031Q4 | 0.23 | −0.12 – 0.61 | 0.11 |
| Prior changed from site default. | |||
| 2027Q1 | 0.29 | −0.08 – 0.68 | 0.06 |
| 2027Q1–2027Q4 | 0.28 | −0.08 – 0.67 | 0.07 |
| 2027Q1–2031Q4 | 0.26 | −0.08 – 0.66 | 0.08 |
| Prior changed from site default. | |||
| 2027Q1 | 0.01 | −0.41 – 0.46 | 0.49 |
| 2027Q1–2027Q4 | 0.02 | −0.36 – 0.44 | 0.48 |
| 2027Q1–2031Q4 | 0.04 | −0.27 – 0.41 | 0.43 |
| Prior changed from site default. | |||
| 2027Q1 | 0.35 | −0.03 – 0.72 | 0.03 |
| 2027Q1–2027Q4 | 0.33 | −0.03 – 0.70 | 0.04 |
| 2027Q1–2031Q4 | 0.30 | −0.04 – 0.68 | 0.05 |
| Prior changed from site default. | |||
| 2027Q1 | 0.05 | −0.38 – 0.50 | 0.42 |
| 2027Q1–2027Q4 | 0.06 | −0.34 – 0.49 | 0.41 |
| 2027Q1–2031Q4 | 0.08 | −0.25 – 0.47 | 0.37 |
| Prior changed from site default. | |||
| 2027Q1 | 0.34 | −0.04 – 0.71 | 0.04 |
| 2027Q1–2027Q4 | 0.33 | −0.04 – 0.70 | 0.04 |
| 2027Q1–2031Q4 | 0.30 | −0.05 – 0.69 | 0.05 |
| Prior changed from site default. | |||
| 2027Q1 | 0.36 | −0.02 – 0.75 | 0.03 |
| 2027Q1–2027Q4 | 0.35 | −0.02 – 0.73 | 0.03 |
| 2027Q1–2031Q4 | 0.31 | −0.04 – 0.71 | 0.04 |
| Prior changed from site default. | |||
| 2027Q1 | −0.09 | −0.50 – 0.35 | 0.66 |
| 2027Q1–2027Q4 | −0.07 | −0.44 – 0.33 | 0.64 |
| 2027Q1–2031Q4 | −0.03 | −0.32 – 0.31 | 0.59 |
| Prior changed from site default. | |||
| 2027Q1 | 0.18 | −0.19 – 0.56 | 0.17 |
| 2027Q1–2027Q4 | 0.17 | −0.18 – 0.53 | 0.17 |
| 2027Q1–2031Q4 | 0.15 | −0.16 – 0.50 | 0.18 |
| Prior changed from site default. | |||
| 2027Q1 | −0.08 | −0.50 – 0.36 | 0.64 |
| 2027Q1–2027Q4 | −0.07 | −0.44 – 0.34 | 0.63 |
| 2027Q1–2031Q4 | −0.02 | −0.33 – 0.33 | 0.58 |
| Prior changed from site default. | |||
| 2027Q1 | 0.17 | −0.20 – 0.54 | 0.19 |
| 2027Q1–2027Q4 | 0.16 | −0.19 – 0.53 | 0.19 |
| 2027Q1–2031Q4 | 0.15 | −0.17 – 0.51 | 0.19 |
| Prior changed from site default. | |||
| 2027Q1 | 0.25 | −0.14 – 0.64 | 0.10 |
| 2027Q1–2027Q4 | 0.23 | −0.13 – 0.61 | 0.11 |
| 2027Q1–2031Q4 | 0.21 | −0.12 – 0.58 | 0.12 |
| Prior changed from site default. | |||
Closest tradable stand-in
None shown. Every pair of the ~870 ETFs that traded throughout 2020–2024 was searched on 2020–2022. But this signal's data ends on 29 September 2023, leaving it 187 of the 502 trading days in the held-out window of 3 January 2023 to 31 December 2024: too short a stretch to report a stand-in's alpha and beta on.