Anomalies and optionability

We document substantial heterogeneity in how option availability relates to anomaly-based long-short returns across different anomaly categories. After adjusting for differences in firm size and liquidity between optionable and non-optionable stocks, momentum and value anomalies are more pronounced for non-optionable stocks, consistent with binding short-sale constraints and information frictions. In-
vestment anomalies, by contrast, are stronger on optionable stocks, in line with theories suggesting that option availability relaxes funding constraints and thereby makes investment-based risk signals more informative. When averaging across all anomaly signals, these opposing effects offset each other, and anomalies are equally strong on optionable and non-optionable stocks.