scholarly journals Volatility Informed Trading in the Options Market: Evidence from India

2015 ◽  
Vol 17 (1) ◽  
pp. 13-22
Author(s):  
Rajesh Pathak
Keyword(s):  
Implied Volatility ◽  
Stock Exchange ◽  
Intrinsic Value ◽  
Emerging Market ◽  
Informed Trading ◽  
Options Market ◽  
Trading Activity ◽  
Market Trends ◽  
Vector Auto Regression ◽  
Auto Regression

The purpose of this paper is to investigate the trading activity in options market based on information about expected future volatility in spot market. We employ Common Implied Volatility as a measure of expected volatility and options volume and changes in Open Interests as measures of options trading activity. We first test for simultaneous information flow in the two markets using multiple regression technique. Next, we test for information based or hedge based use of options using Trivariate Vector-auto Regression framework. We further consider the classes of options moneyness and the market trends in our analysis to examine if the trader’s preference of options changes with change in description of options intrinsic value and market environment. We use daily closing data of S&P CNX Nifty Index options traded on National Stock Exchange, India. We, for the most part, find negative and significant relationship in contemporaneous regression suggesting active trading by arbitrageurs. A feedback relationship is observed in vector auto regression analysis suggesting that options are traded in India for both information based trading and hedging purposes. We also observe the relationship to be varying when market trends and classes of options moneyness are considered. This indicates that traders are not indifferent in their choice of trading venue when market conditions and factors change. The results of this study are helpful for traders in managing the risk and return of their portfolio based on volatility forecast. This study is distinctive as it examines the scarcely researched area of volatility informed trading in an emerging market set up.

scholarly journals Transactions Volume, Exchange Direction and Asymmetry of Volatility in Emerging Market: Evidence From Tunisian Stock Exchange

2020 ◽  
Vol 11 (6) ◽  
pp. 318
Author(s):  
Jaber Yasmina
Keyword(s):  
Stock Market ◽  
Financial Market ◽  
Stock Exchange ◽  
Emerging Market ◽  
Explanatory Power ◽  
Trading Activity ◽  
Auto Correlation ◽  
The Asymmetry ◽  
The Impact ◽  
The Relationship

This study is an attempt to explain the relationship between intraday return and volume in Tunisian Stock Market. Indeed, former researches avow that the trading activity have the main explanatory power for volatility. However, most theories measure the activity of transactions through the size of exchange or the number of transactions. Nevertheless, these components are not aware enough of the importance of the direction of exchange when explaining the phenomenon of asymmetry of volatility. In the most of studies, the technique “Augmented Tick Test” (ATT) is employed so as to identify the direction of exchange. Such technique is adapted for the markets directed by orders like the Tunisian financial market. Again, this paper shows that the impact of the direction of exchange differs according to the market trend. In other words, if the returns are positive, the transactions of sale (of purchase) generate a decrease (increase) of volatility; whereas, they induce an increase (drop) of volatility if returns are negative. This result stresses the significance of exchange direction in explaning the asymmetry of volatility. Moreover, throughout this study, one may affirm that “Herding trades” are at the origin of the increase of volatility, while the “Contrarian trades” reduce volatility. Similarly, the identification of the direction of exchange enables us to affirm that the transactions of the initiates are characterized by the absence of returns auto- correlation; whereas, the transactions carried out by uninformed investors present an auto- correlation of the returns. In fact, the sign of this correlation varies according to transaction direction.

scholarly journals Patterns of 50 ETF Options Implied Volatility in China: On Implied Volatility Functions

2021 ◽  
Vol 24 (1) ◽  
pp. 135-145
Author(s):  
Pengshi Li ◽  
Yan Lin ◽  
Yuting Zhong
Keyword(s):  
Implied Volatility ◽  
Stock Exchange ◽  
Empirical Work ◽  
Ordinary Least Squares ◽  
Options Pricing ◽  
Options Market ◽  
European Options ◽  
Volatility Smile ◽  
Volatility Function ◽  
Better Than

The aim of this study is to examine the volatility smile based on the European options on Shanghai stock exchange 50 ETF. The data gives evidence of the existence of a well-known U-shaped implied volatility smile for the SSE 50 ETF options market in China. For those near-month options, the implied volatility smirk is also observed. And the implied volatility remains high for the short maturity and decreases as the maturity increases. The patterns of the implied volatility of SSE 50 ETF options indicate that in-the-money options and out-of-the-money options are more expensive relative to at-the-money options. This makes the use of at-the-money implied volatility for pricing out-of- or in-the-money options questionable. In order to investigate the implied volatility, the regression-based implied volatility functions model is considered employed to study the implied volatility in this study as this method is simple and easy to apply in practice. Several classical implied volatility functions are investigated in this paper to find whether some kind of implied volatility functions could lead to more accurate options pricing values. The potential determinants of implied volatility are the degree of moneyness and days left to expiration. The empirical work has been expressed by means of simple ordinary least squares framework. As the study shows, when valuing options, the results of using volatility functions are mixed. For far-month options, using at-the-money implied volatility performs better than other volatility functions in option valuation. For near-month options, the use of volatility functions can improve the valuation accuracy for deep in-the-money options or deep out-of-the-money options. However, no particular implied volatility function performs very well for options of all moneyness level and time to maturity.

scholarly journals The Post-IPO Performance in the PRC

2019 ◽  
Vol 14 (11) ◽  
pp. 109
Author(s):  
Zhang Hanbing ◽  
Jeffrey E. Jarrett ◽  
Xia Pan
Keyword(s):  
Initial Public Offerings ◽  
Information Disclosure ◽  
Stock Exchange ◽  
Intrinsic Value ◽  
Emerging Market ◽  
Statistical Significance ◽  
Abnormal Returns ◽  
Regression Result ◽  
Cross Sectional ◽  
Long Run

The long-run underperformance of IPOs (Initial Public Offerings) is one of the three “New Issues Puzzles” It indicates that if investors buy IPOs and hold for more than three years they will get negative abnormal returns It is necessary to examine the long-run performance of IPOs in China because it benefits how to enhance the efficiency of IPOs market and provides insight of emerging market This paper empirically examines the performance for three years after listing of 76 Shanghai Stock Exchange IPOs form 2002 to 2007, the matched company as the benchmark, the matched company comes from the same industry and similar circulated stock value with listed companies. First it computes the long-run excess returns of the IPOs with types of models. Then it examines whether the underperformance has statistical significance or not. After that, it analyzes the relationship between the variables and long-run performance of IPOs. Research documents that the IPOs significantly underperformed the matched companies. The cumulative abnormal returns over the three years listing are -0.18446. The buy and hold abnormal returns over three years after listing are-0.01284. At last, using the cross-sectional analysis to analyze the factors that affect the long-run performance of IPOs, the regression result shows that EPS is the basic reason; the intrinsic value, issue characteristics and the investors’ sentiment (overoptimistic) are the main reason for long-run performance of IPOs. This paper analyzes the reason of this phenomenon, then from the reason puts forward relevant suggestions: firstly, improving the information disclosure; secondly, evaluating the rational investors; thirdly, strengthening market supervision.

scholarly journals Monetary Shocks or Real Shocks, Which matters the most for Share Prices

2011 ◽  
Vol 2 (6) ◽  
pp. 246-251
Author(s):  
Muhammad Imtiaz Subhani
Keyword(s):  
Stock Exchange ◽  
Unit Root Test ◽  
Share Price ◽  
Monetary Shocks ◽  
Share Prices ◽  
Time Series Econometrics ◽  
Monthly Period ◽  
Vector Auto Regression ◽  
Real Shocks ◽  
Auto Regression

This study examines that out of monetary shocks (∆M2) and real shocks in share prices (∆Yt-k), which one or both really explain share prices of Karachi stock exchange 100 index. The time series econometrics is used to investigate the data for the monthly period of January 1991 to January 2011 for money supply (M2) and share prices of KSE 100 index. The results of unit root test reveal that there is a real shock in share prices and it explains the share price of KSE 100 index temporarily, while Vector auto regression revealed that Share prices of KSE 100 index is meagerly explained by the monetary shocks.

scholarly journals International Equity Portfolios and Currency Hedging: The Viewpoint of German and Hungarian Investors

2002 ◽  
Vol 32 (1) ◽  
pp. 171-197 ◽  
Author(s):  
Gyöngyi Bugár ◽  
Raimond Maurer
Keyword(s):  
Capital Market ◽  
Stock Exchange ◽  
Emerging Market ◽  
Currency Hedging ◽  
Portfolio Strategies ◽  
Different Types ◽  
International Equity ◽  
Good Potential ◽  
Points Of View ◽  
Equity Portfolios

AbstractIn this paper we study the benefits derived from international diversification of equity portfolios from the German and the Hungarian points of view. In contrast to the German capital market, which is one of the largest in the world, the Hungarian Stock Exchange is an emerging market. The Hungarian stock market is highly volatile, high returns are often accompanied by extremely large risk. Therefore, there is a good potential for Hungarian investors to realise substantial benefits in terms of risk reduction by creating multi-currency portfolios. The paper gives evidence on the above mentioned benefits for both countries by examining the performance of several ex ante portfolio strategies. In order to control the currency risk, different types of hedging approaches are implemented.

Adverse selection, brokerage coverage, and trading activity on the Tokyo Stock Exchange

2005 ◽  
Vol 29 (6) ◽  
pp. 1483-1508 ◽  
Author(s):  
Hee-Joon Ahn ◽  
Jun Cai ◽  
Yasushi Hamao ◽  
Richard Y.K. Ho
Keyword(s):  
Adverse Selection ◽  
Stock Exchange ◽  
Trading Activity ◽  
Tokyo Stock Exchange

Creating Value in Small-cap Firms by Mitigating Risks of Market Volatility

2017 ◽  
Vol 21 (4) ◽  
pp. 350-355 ◽  
Author(s):  
Sayantan Khanra ◽  
Sanjay Dhir
Keyword(s):  
Stock Exchange ◽  
Emerging Market ◽  
Market Volatility ◽  
Emerging Market Economies ◽  
Financial Returns ◽  
Market Economies ◽  
Volatility Index

Extant research has explored numerous ideal approaches to predict and anticipate the unpredictability in stocks to mitigate business risks. This article attempts to offer an important insight on creating values in terms of financial returns dodging the risks associated with the market volatility in emerging market economies by exploring the context of National Stock Exchange (NSE), India. The study establishes that Small-cap companies, which are included in NSE Small 100 index, are less inclined to be impacted by the market volatility index (NVIX) compared to the Large-cap companies and Mid-cap companies that are under respective Broad Market Indices. Furthermore, this article examines 64 Small-cap companies, belonging to nine different sectors, to investigate the sector-wise impact of market volatility on Small-cap businesses in India.

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