Anomalies and Optionability

We observe pronounced differences between anomaly long-short returns in the group of stocks with traded options, relvative to the group of stocks without options. The average monthly anomaly return of 0.63% on non-optionable stocks is almost cut in halves (0.34%) when considering optionable stocks. We document especially large differences for anomalies in momentum, value, and trading frictions-categories, but no differences in profitability, investment, and intangibles-categories. When we adjust for differences in size and liquidity between optionable and non-optionable stocks, the differences in anomaly returns vanish on average. However, we still observe significant differences within some of the categories. These results shed new light on the impact of options on the cross-section of expected stock returns and the origins of anomalies.