Predictable Dynamics in the Implied Volatility Surface Based on Weighted Least Squares: Evidence from Soybean Meal Futures Options in China
In: Emerging markets, finance and trade: EMFT, Band 56, Heft 11, S. 2625-2638
ISSN: 1558-0938
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In: Emerging markets, finance and trade: EMFT, Band 56, Heft 11, S. 2625-2638
ISSN: 1558-0938
SSRN
Working paper
In: Review of financial economics: RFE, Band 14, Heft 1, S. 1-23
ISSN: 1873-5924
AbstractThis paper investigates the flow of information between the equity and options markets. We argue that informed traders, in deciding where to place their trades, are not entirely indifferent to option moneyness, degree of information asymmetry, and option liquidity. Unlike some previous studies that find information to flow unilaterally from equity to options markets, we control for the above factors and discover feedback relations between trades in out‐of‐the‐money (OTM) options and the underlying equities. The finding is consistent with the pooling equilibrium hypothesis, which asserts that informed traders trade in both the equity and options markets. Some informed traders are probably attracted to the out‐of‐the money options because of their higher liquidity, lower premiums, and higher delta‐to‐premium ratios, hence, lending support to the liquidity and leverage hypothesis.
In: The journal of financial research: the journal of the Southern Finance Association and the Southwestern Finance Association, Band 29, Heft 1, S. 43-62
ISSN: 1475-6803
AbstractWe investigate net buying pressure in the Hong Kong Hang Seng Index options market during the Asian financial crisis from July 1997 to August 1998. Our findings suggest that during this period, the dramatic changes in volatility overwhelmed the dynamics of supply and demand in the options market. The extremely high realized volatility drove market participants' expectations about future market volatility in the early months of the crisis. Findings during the late‐crisis, pre‐crisis, and post‐crisis periods are consistent with the net buying pressure hypothesis.