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Collection: Faculty Working Papers  
 
Title Straddle Option Profitability in Corporate Lawsuits
Author Wind, Erica A.
Laux, Judith A.
Type of Resource text
Digital Origin born digital
Date Created 2007-05
Abstract The current study investigates whether abnormal returns may be gained by purchasing a straddle position prior to a verdict or settlement announcement in a lawsuit. The basis for the hypothesis stems from behavioral finance - more specifically, the Overreaction Hypothesis. Using CAPM expected rates of return and comparisons of 31 lawsuit firms' straddle returns, three new straddle trading strategies are devised. Within the sample of lawsuits, abnormal returns are evident for the three strategies. The results and their implications support behavioral finance and the Overreaction Hypothesis and thus refute the Efficient Markets Hypothesis.
Keywords straddle
lawsuit
CAPM
overreaction hypothesis
efficient markets
Rights Statement Copyright restrictions apply. Contact the author for permission to publish.
Note (admin) Acquired as PDF from Colorado College Department of Economics and Business. Converted to PDF/A1.b using Adobe Acrobat Professional.
Publisher Colorado College
Place of Publication Colorado Springs, Colorado
Local Identifier 2007-03
Handle http://hdl.handle.net/10176/coccc:2618
 
Attached Files
Name Description MIMEType Size Downloads
StraddleOption.pdf   master application/pdf 880.02KB 0

 
 
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Created: Wed, 13 Jan 2010, 16:22:50 MST by Christine Ashlock (admin) . Detailed History