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Index Option Market (index + option_market)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

Information Effects of Trade Size and Trade Direction: Evidence from the KOSPI 200 Index Options Market,

ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 3 2010
Hee-Joon Ahn
G10; G13 Abstract In the present study, we examine two important issues related to the information content of a trade in option markets: (i) whether trade size is related to information content; and (ii) whether buy and sell transactions carry different information content. Our analysis is based on comprehensive market microstructure data on the KOSPI 200 options, the single most actively traded derivative securities in the world. We use two structural models modified from the Madhavan et al. [Review of Financial Studies 10 (1997) 1035,1064] model, the size-dependent model (SDM), and the dummy variable model (DVM). The SDM incorporates trade size in the model to estimate the magnitude of the information content of a trade. The DVM separately estimates information contents for buyer- and seller-initiated trades using a dummy variable. Our SDM analysis reveals that large trades are in general more informative than small trades. The results from the DVM analysis indicate that buyer-initiated trades generally have greater information content than seller-initiated trades. A further analysis using investor-type information shows that the asymmetry in information content between buy and sell trades is mostly attributable to the orders submitted by foreign and domestic institutional investors. [source]

Informed trading in the index option market: The case of KOSPI 200 options

THE JOURNAL OF FUTURES MARKETS, Issue 12 2008
Hee-Joon Ahn
This study examines if informed trading is present in the index option market by analyzing the KOSPI 200 options, the most actively traded derivative product in the world. The spread decomposition model developed by Madhavan, Richardson, and Roomans (1997) is utilized and the adverse-selection cost component of the spread estimated by the model is then used as a proxy for the degree of informed trading. We find that adverse-selection costs constitute a nontrivial portion of the transaction costs in index options trading. Approximately one-third of the spread can be accounted for by information asymmetry costs. A further analysis indicates that adverse-selection costs are positively related with option delta. Our regression analysis shows that option-related variables are significantly associated with estimated information asymmetry costs, even when controlling for proxies for informed trading in the index futures market. Finally, we find the evidence that foreign investors are better informed compared to domestic investors and that domestic institutions have an edge in terms of information over domestic individuals. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:1118,1146, 2008 [source]

The economic significance of conditional skewness in index option markets

THE JOURNAL OF FUTURES MARKETS, Issue 4 2010
Ranjini Jha
This study examines whether conditional skewness forecasts of the underlying asset returns can be used to trade profitably in the index options market. The results indicate that a more general skewness-based option-pricing model can generate better trading performance for strip and strap trades. The results show that conditional skewness model forecasts, when combined with forward-looking option implied volatilities, can significantly improve the performance of skewness-based trades but trading costs considerably weaken the profitability of index option strategies. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:378,406, 2010 [source]

Net buying pressure, volatility smile, and abnormal profit of Hang Seng Index options

THE JOURNAL OF FUTURES MARKETS, Issue 12 2004
Kam C. Chan
We use the net buying pressure hypothesis of N. P. B. Bollen and R. Whaley (2004) to examine the implied volatilities, options premiums, and options trading profits at various time-intervals across five different moneyness categories of Hong Kong Hang Seng Index (HSI) options. The results show that the hypothesis can well describe the newly developed Hong Kong index options markets. The abnormal trading profits by selling out-of-the-money puts with delta hedge are statistically and economically significant across all options maturities. The findings are robust with or without outlier adjustment. Moreover, we provide two insights about the hypothesis. First, net buying pressure is attributed to hedging activities. Second, the net buying pressure on calls is much weaker than that on put options. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:1165,1194, 2004 [source]