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Beware of Extreme Investor Sentiments! Indian Evidence on the Performance of Neuro-specific Options Volatility Trading Strategies on the Facets of COVID-19

Author

Listed:
  • Ansu Royit
  • Babu Jose
  • James Varghese

Abstract

This study investigates the dynamic relationship between noise trader sentiment and excessive volatility in the Indian financial market during the COVID-19 outbreak. It proposes novel options trading strategies to ensure profitability in times of irrational exuberance and to satisfy diverse investment requirements of volatility traders, which arise from the varying levels of stimulating neurotransmitters, namely dopamine and serotonin in the human body. Empirical results show that the incremental information content of sentiment measures is vital in forecasting future volatility and the proposed options trading strategies effectively accomplish the neuro-specific intentions of the traders during extreme volatility in the Indian equity market. JEL Codes: G12, G13

Suggested Citation

  • Ansu Royit & Babu Jose & James Varghese, 2023. "Beware of Extreme Investor Sentiments! Indian Evidence on the Performance of Neuro-specific Options Volatility Trading Strategies on the Facets of COVID-19," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 22(3), pages 326-350, September.
    • Handle: RePEc:sae:emffin:v:22:y:2023:i:3:p:326-350
    DOI: 10.1177/09726527231165820
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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