5 things I learned today #2

I had fun with my 5 things yesterday's so I am doing it again.

Five things I learned today:

1. Volume of equity options traded with the Options Clearing House (OCC )is over 10 times that of non equity traded options.  This ratio has stayed relatively constant since 2000.  Data source: OCC. http://www.optionsclearing.com/webapps/historical-volume-query (Sept 26, 2013)

year	equity	non equity	equity percentage	equity to non equity
2012	3,681,820,659	322,050,649	90.23%	11.43
2011	4,224,604,529	338,143,665	91.06%	12.49
2010	3,610,436,931	288,631,739	91.35%	12.51
2009	3,366,967,321	245,669,797	92.57%	13.71
2008	3,284,761,345	297,811,236	91.42%	11.03
2007	2,592,102,961	270,723,257	89.96%	9.57
2006	1,844,181,918	183,665,668	90.20%	10.04
2005	1,369,048,282	135,263,258	90.32%	10.12
2004	1,083,649,226	98,390,870	91.33%	11.01
2003	830,308,227	77,550,428	90.94%	10.71
2002	709,784,014	70,673,329	90.87%	10.04
2001	722,680,249	58,581,686	92.50%	12.34
2000	672,871,757	53,856,182	92.59%	12.49

  2.  Playing with FINVIZ is fun.  For instance:

There are over 3600 firms that trade on the NYSE. (Finviz.com)

391 of the S&P 500 trade on the NYSE
109 of the S&P 500 trade on the NASDAQ

27 of the Dow Jones Industrial stocks trade on the NYSE
 3 of the Dow Jones Industrial stocks trade on the NASDAQ

 http://finviz.com/screener.ashx?v=111&f=exch_nyse,fa_div_pos


3. Given the importance of option trading, Kane's finding that option markets are important for price discovery should not be a surprise, but rather seen as confirmation of what we already assumed.

"I find evidence that the equity prices do adjust towards the option prices to reconcile the mispricing event. The results show that there is a significant movement in the equity prices towards the option prices, however consistent with the model the equity prices only move part of the way and the implied prices move back resulting in a reconciliation price in the middle"

Kane, Hayden, Price Discovery Across Equity and Option Markets (September 13, 2013). Available at SSRN: http://ssrn.com/abstract=2325714 or http://dx.doi.org/10.2139/ssrn.2325714

4. CEO pay was pretty constant from 1936 to 1980...then, not so much:

Time        Median CEO pay in millions of constant 2000 dollars

1936-1939	1.1
1940-1945	1.07
1946-1949	0.9
1950-1959	0.97
1960-1969	0.99
1970-1979	1.17
1980-1989	1.81
1990-1999	4.09
2000-2005	9.2

Source:

Arantxa Jarque: CEO Compensation: Trends, Market Changes, and Regulation in Economic Quarterly, Summer 2008

Available at http://www.richmondfed.org/publications/research/economic_quarterly/2008/summer/pdf/jarque.pdf

Note: the original source of the data is: Frydman and Saks (2007).

5.  The quarterly correlation between bonds and stocks has been negative in the 2000s.   CBS reported on a paper by Harvard's Malcom Baker and NYU's Jeffery Wurgler.

Here is the key table from the CBS report:
     
            Decade   Correlation

• 1970-79: 0.49
• 1980-89: 0.36
• 1990-99: 0.19
• 2000-11: -0.55

Source: http://www.cbsnews.com/8301-505123_162-57464128/the-correlation-of-bond-and-stock-returns/

The second really cool thing about the Baker and Wurgler paper is that in it they break down bonds into different types: for instance "bond like" stocks have a higher correlation whereas more speculative stocks have a lower correlation.  VERY cool!

(as I would label it: I^3: Informative, Interesting, and Important!


  I didn't believe the correlations were so low so I decided to test it myself.  I took a closed end fund and compared it to the S&P and the Dow.  And, well, they seem to be right!  Check for yourself: here.