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Bank Stock And Option Transmissions In Financial Crisis

Author

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  • Han-Ching Huang
  • Yong-Chern Su
  • Sheng-Jung Wu

Abstract

We investigate bank stock and option transmissions during the financial crisis in 2008. Contemporaneous and lagged-one stock order imbalances have a significant impact on option returns. A time-varying GARCH model is employed to confirm the results. We develop an imbalance-based call (put) trading strategy that buys the call (put) if the previous day’s stock imbalance is positive, and sells the stock if the previous day’s stock imbalance is negative. The empirical results do not show a positive premium, which implies market efficiency between option and stock markets in financial crisis

Suggested Citation

  • Han-Ching Huang & Yong-Chern Su & Sheng-Jung Wu, 2015. "Bank Stock And Option Transmissions In Financial Crisis," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(5), pages 17-23.
    • Handle: RePEc:ibf:ijbfre:v:9:y:2015:i:5:p:17-23
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    References listed on IDEAS

    as
    1. Aloui, Riadh & Aïssa, Mohamed Safouane Ben & Nguyen, Duc Khuong, 2011. "Global financial crisis, extreme interdependences, and contagion effects: The role of economic structure?," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 130-141, January.
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    6. Choy, Siu Kai & Wei, Jason, 2012. "Option trading: Information or differences of opinion?," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2299-2322.
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    More about this item

    Keywords

    Order Imbalance; Market Efficiency; Investment Bank; Commercial Bank; Financial Crisis; Option;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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