Market Sentiment of Highly Innovative Firms

Abstract

This paper examines the relationship between firm innovation and options, addressing gaps in the existing literature. While prior research has explored innovation’s impact on firm valuation, the direct link between innovation and market sentiment, as reflected in the options market, remains underexplored. By analyzing data on put-call ratios and the quality and quantity of innovation within firms, this study seeks to determine whether innovation influences market sentiment and serves as a significant determinant of investor behavior in the options market. Our findings provide insights into whether financial markets efficiently incorporate intangible assets, such as patents and R&D investments, into the put-call ratio. Statistically significant differences are found in the put-call ratios corresponding to varying levels of innovation, so this paper contributes to the literature by demonstrating that higher levels of innovation are associated with more optimistic market sentiment