July 15, 2013
This paper investigates the impact of retail investor attention, measured by Google search frequency, on option trading and option pricing as well as stock return volatility. We document a significant positive relation between Google search volume and future option trading activity of retail investors. Moreover, retail investors tend to take more bullish option positions following increased attention. Although option implied volatilities initially rise, the long run impact of Google search volume on option prices is negative, albeit small in magnitude.