Impacts of pandemic shocks on China's financial options volatility: Evidence from COVID-19 crisis

Using a model-free method, this paper calculates higher-order moments of daily data, such as implied variance for the SSE 50 ETF options. The asymmetric relationship between returns and the implied higher-order moments of options is analyzed using Quantile Regression (QRM) and the Generalized Method of Moments (GMM). The empirical results showed that from February 2015 to May 2024, the concurrent returns significantly affected the implied volatility, implied skewness, and implied kurtosis of the options. Moreover, negative returns have a greater impact on implied volatility, indicating the presence of asymmetry. By using quantile regression, it is found that asymmetry is more significant when volatility is at the 90th percentile of the upper quantile range. Similar results are observed in regressions involving implied skewness and implied kurtosis. The paper explains the reasons for the asymmetric relationship in China's options market from the perspectives of heuristics and representative bias in behavioral theories. And during the COVID-19 pandemic period, the asymmetry became more pronounced due to changes in investors' risk perception and behavior. The findings of this paper are of theoretical and practical significance for understanding the relationship between returns and implied volatility in China's options market, which also provides references for the decision-makers in departments.