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The informativeness of options-trading activities: Non-linear analysis based on MF-DCCA and Granger test

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  • Zhou, Yaping
  • Lu, Baoqun
  • Lv, Dayong
  • Ruan, Qingsong

Abstract

Using both Put–Call ratio (P/C) and Option-to-Stock Volume ratio (O/S) as measures of options-trading activities, this paper investigates the information content of SSE 50 ETF options. We begin by using detrended fluctuation analysis (MF-DFA) method to examine the multifractal properties of P/C ratio change series, O/S ratio change series and ETF returns, and find that these time series exhibit strong multifractality. Moreover, employing multifractal detrended cross-correlation analysis (MF-DCCA), we show that there exists strong anti-persistent cross-correlation between P/C ratios and 50 ETF returns, but no significant cross-correlation between O/S ratios and 50 ETF returns, suggesting that P/C ratio is more pronounced detecting the information content of options. Furthermore, we use nonlinear Granger causality test and show that the Granger causality relationships between P/C ratio and 50 ETF return series is more significant and stronger than that between O/S ratio and 50 ETF return series. Our findings imply that P/C ratio can better capture the informativeness of options.

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  • Zhou, Yaping & Lu, Baoqun & Lv, Dayong & Ruan, Qingsong, 2019. "The informativeness of options-trading activities: Non-linear analysis based on MF-DCCA and Granger test," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 534(C).
    • Handle: RePEc:eee:phsmap:v:534:y:2019:i:c:s0378437119313044
    DOI: 10.1016/j.physa.2019.122269
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