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Option Prices as Predictors of Equilibrium Stock Prices

Steven Manaster and Richard J. Rendleman, Jr.
The Journal of Finance
Vol. 37, No. 4 (Sep., 1982), pp. 1043-1057
Published by: Wiley for the American Finance Association
DOI: 10.2307/2327766
Stable URL: http://www.jstor.org/stable/2327766
Page Count: 15
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Option Prices as Predictors of Equilibrium Stock Prices
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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 reveals that is not fully reflected in observed stock prices. The implications of this finding are discussed.

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