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Does the Listing of Options Improve Forecasting Power? Evidence from the Shanghai Stock Exchange

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  • Biao Guo
  • Zhen Wang
  • Shuyu Fan

Abstract

This study uses model-free implied volatility and risk-neutral skewness to test the information content of options. Using the CSI 300 ETF options traded on the Hong Kong Exchange, New York Stock Exchange, and Shanghai Stock Exchange (SSE), we find that information content indeed matters and differs before and after the listing of the options on the SSE; forecasting power improved in relation to return, volatility, and tail risk predictions. The findings demonstrate the information effectiveness of China’s options markets and have strong guidance implications for policy regulation, investment, and financial market risk management in emerging economies with derivative markets.

Suggested Citation

  • Biao Guo & Zhen Wang & Shuyu Fan, 2022. "Does the Listing of Options Improve Forecasting Power? Evidence from the Shanghai Stock Exchange," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(15), pages 4300-4308, December.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:15:p:4300-4308
    DOI: 10.1080/1540496X.2022.2063718
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