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Put–Call Ratio Volume vs. Open Interest in Predicting Market Return: A Frequency Domain Rolling Causality Analysis

1
Department of Finance, IBS Hyderabad, IFHE University, Hyderabad 501203, India
2
Department of Finance, Control and Law, Montepellier Business School, 34000 Montepelllier, France
3
Department of Operations and Quantitative Methods, International Management Institute, New Delhi 110016, India
*
Author to whom correspondence should be addressed.
Economies 2019, 7(1), 24; https://doi.org/10.3390/economies7010024
Received: 22 September 2018 / Revised: 3 February 2019 / Accepted: 12 March 2019 / Published: 25 March 2019
(This article belongs to the Special Issue Efficiency and Anomalies in Stock Markets)
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Abstract

This study examined the efficacy of the Put–Call Ratio (PCR), a widely used information ratio measured in terms of volume and open interest, in predicting market return at different time scale. Volume PCR was found to be an efficient predictor of the market return in a short period of 2.5 days and open interest PCR in a long period of 12 days. Thus, traders and portfolio managers should use the appropriate PCR depending upon the time horizon of their trade and investment. The results are robust even after controlling for the information generated from the futures market. View Full-Text
Keywords: Put–Call Ratio; volume; open interest; frequency-domain roiling causality Put–Call Ratio; volume; open interest; frequency-domain roiling causality
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Jena, S.K.; Tiwari, A.K.; Mitra, A. Put–Call Ratio Volume vs. Open Interest in Predicting Market Return: A Frequency Domain Rolling Causality Analysis. Economies 2019, 7, 24.

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