Option Prices as Predictors of Equilibrium Stock Prices

  • Author(s): STEVEN MANASTER, RICHARD J. RENDLEMAN
  • Published: Apr 30, 2012
  • Pages: 1043-1057
  • DOI: 10.1111/j.1540-6261.1982.tb03597.x

ABSTRACT

The Black‐Scholes option pricing model, modified for dividend payments, is used to calculate jointly implied stock prices and implied standard deviations. A comparison of the implied stock prices with observed stock prices reveals that the implied prices contain information regarding equilibrium stock prices that is not fully reflected in observed stock prices. The implications of this finding are discussed.

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