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Macro disagreement and international options markets

Author

Listed:
  • Li, Huijing
  • Li, Hong
  • Lu, Lei
  • Theocharides, George
  • Xiong, Xiong

Abstract

We empirically examine the effects of the disagreement on macroeconomic conditions among economists in options markets (indices) at the country level. We find positive and significant relations between the disagreement on macro fundamentals (e.g., GDP growth, CPI, and the unemployment rate) and at-the-money implied volatility, the volatility risk premium, the out-of-the-money (OTM) volatility skew, and option open interest. Our findings have important implications: the macroeconomic disagreement among forecasters varies over time, which means that investors could obtain an expected return by generating a time-varying risk premium in the index options trading market.

Suggested Citation

  • Li, Huijing & Li, Hong & Lu, Lei & Theocharides, George & Xiong, Xiong, 2020. "Macro disagreement and international options markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:intfin:v:65:y:2020:i:c:s1042443120300718
    DOI: 10.1016/j.intfin.2020.101187
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    More about this item

    Keywords

    Macro disagreement; Options market;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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