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Option Prices and Model-free Measurement of Implied Herd Behavior in Stock Markets

Author

Listed:
  • Daniël Linders

    (KU Leuven, Leuven, Belgium)

  • Jan Dhaene

    (KU Leuven, Leuven, Belgium)

  • Wim Schoutens

    (KU Leuven, Leuven, Belgium)

Abstract

In this paper, we introduce two classes of indices which can be used to measure the market perception concerning the degree of dependency that exists between a set of random variables, representing di¤erent stock prices at a xed future date. The construction of these measures is based on the theory of comonotonicity. Both types of herd behavior indices are model-free and risk-neutral, derived from available option data. Depending on its particular de nition, each index represents a particular aspect of the market sentiment concerning future co-movement of the underlying stock prices.

Suggested Citation

  • Daniël Linders & Jan Dhaene & Wim Schoutens, 2015. "Option Prices and Model-free Measurement of Implied Herd Behavior in Stock Markets," Tinbergen Institute Discussion Papers 15-002/IV/DSF 83, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20150002
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    References listed on IDEAS

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    Cited by:

    1. Lee Woojoo & Ahn Jae Youn, 2017. "Measuring herd behavior: properties and pitfalls," Dependence Modeling, De Gruyter, vol. 5(1), pages 316-329, December.

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    More about this item

    Keywords

    comonotonicity; herd behavior; HIX; index options; market fear; Model-free measures; VIX;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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