Information content of options trading volume for future volatility: Evidence from the Taiwan options market
This study follows the approach of Ni et al. [Ni, S.X., Pan, J., Poteshman, A.M., 2008. Volatility information trading in the option market. Journal of Finance 63, 1059-1091] - based upon the vega-weighted net demand for volatility - to determine whether volatility information exists within the Taiwan options market. Our empirical results show that foreign institutional investors possess the strongest and most direct volatility information, which is realized by the delta-neutral options/futures trades. In addition, a few individual investors (less than 1% of individuals' trades) might be informed and realize their volatility information using the strangle strategy. Surprisingly, we find no evidence to support the predictive ability of the volatility demand from straddle trades, despite the widespread acknowledgement that such trades are sensitive to volatility.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jorion, Philippe, 1995. " Predicting Volatility in the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 50(2), pages 507-28, June.
- Bedendo, Mascia & Hodges, Stewart D., 2009. "The dynamics of the volatility skew: A Kalman filter approach," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1156-1165, June.
- Charles Cao & Zhiwu Chen & John M. Griffin, 2005.
"Informational Content of Option Volume Prior to Takeovers,"
The Journal of Business,
University of Chicago Press, vol. 78(3), pages 1073-1109, May.
- Charles Quanwei Cao & Zhiwu Chen & John M. Griffin, 2003. "Informational Content of Option Volume Prior to Takeovers," Yale School of Management Working Papers ysm422, Yale School of Management.
- Jun Pan & Allen M. Poteshman, 2006.
"The Information in Option Volume for Future Stock Prices,"
Review of Financial Studies,
Society for Financial Studies, vol. 19(3), pages 871-908.
- Jun Pan & Allen Poteshman, 2004. "The Information of Option Volume for Future Stock Prices," NBER Working Papers 10925, National Bureau of Economic Research, Inc.
- Anthony Richards, 2004.
"Big Fish in Small Ponds: The Trading Behaviour and Price Impact of Foreign Investors in Asian Emerging Equity Markets,"
RBA Research Discussion Papers
rdp2004-05, Reserve Bank of Australia.
- Richards, Anthony, 2005. "Big Fish in Small Ponds: The Trading Behavior and Price Impact of Foreign Investors in Asian Emerging Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(01), pages 1-27, March.
- Canina, Linda & Figlewski, Stephen, 1993. "The Informational Content of Implied Volatility," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 659-81.
- Sophie X. Ni & Jun Pan & Allen M. Poteshman, 2008. "Volatility Information Trading in the Option Market," Journal of Finance, American Finance Association, vol. 63(3), pages 1059-1091, 06.
- Blair, Bevan J. & Poon, Ser-Huang & Taylor, Stephen J., 2001. "Forecasting S&P 100 volatility: the incremental information content of implied volatilities and high-frequency index returns," Journal of Econometrics, Elsevier, vol. 105(1), pages 5-26, November.
- Kalok Chan & Y. Peter Chung & Wai-Ming Fong, 2002. "The Informational Role of Stock and Option Volume," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1049-1075.
- Froot, Kenneth A. & O'Connell, Paul G. J. & Seasholes, Mark S., 2001.
"The portfolio flows of international investors,"
Journal of Financial Economics,
Elsevier, vol. 59(2), pages 151-193, February.
- Konstantinidi, Eirini & Skiadopoulos, George & Tzagkaraki, Emilia, 2008. "Can the evolution of implied volatility be forecasted? Evidence from European and US implied volatility indices," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2401-2411, November.
- Sugato Chakravarty & Huseyin Gulen & Stewart Mayhew, 2004. "Informed Trading in Stock and Option Markets," Journal of Finance, American Finance Association, vol. 59(3), pages 1235-1258, 06.
- Brad M. Barber & Yi-Tsung Lee & Yu-Jane Liu & Terrance Odean, 2009. "Just How Much Do Individual Investors Lose by Trading?," Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 609-632, February.
- Sassan Alizadeh & Michael W. Brandt & Francis X. Diebold, 2002. "Range-Based Estimation of Stochastic Volatility Models," Journal of Finance, American Finance Association, vol. 57(3), pages 1047-1091, 06.
- George J. Jiang & Yisong S. Tian, 2005. "The Model-Free Implied Volatility and Its Information Content," Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1305-1342.
- John M. Griffin & Federico Nardari & René M. Stulz, 2004. "Are Daily Cross-Border Equity Flows Pushed or Pulled?," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 641-657, August.
- J. Scott Chaput & Louis H. Ederington, 2005. "Volatility trade design," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 25(3), pages 243-279, 03.
- Chang, Chuang-Chang & Hsieh, Pei-Fang & Lai, Hung-Neng, 2009. "Do informed option investors predict stock returns? Evidence from the Taiwan stock exchange," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 757-764, April.
- Parkinson, Michael, 1980. "The Extreme Value Method for Estimating the Variance of the Rate of Return," The Journal of Business, University of Chicago Press, vol. 53(1), pages 61-65, January.
- Chern, Keh-Yiing & Tandon, Kishore & Yu, Susana & Webb, Gwendolyn, 2008. "The information content of stock split announcements: Do options matter?," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 930-946, June.
When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:34:y:2010:i:1:p:174-183. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.