The information content of option implied volatility surrounding the 1997 Hong Kong stock market crash

Fung, Joseph K. W.

doi:10.1002/fut.20259

Cited by 31 publications

(14 citation statements)

References 41 publications

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“…It proves that the option trading volume can indeed reflect the future market volatility. The results coincide with the findings in Jayaraman et al (2001), Kawaller et al (2001), Poteshman (2006), andFung (2007). As the empirical results of the open interest are not the same as those of the option trading volume, the information covered in the option trading volume may have included the information set covered in the open interest.…”

Section: Inclusion Of the Option Market Informationsupporting

confidence: 80%

“…On the contrary, if they predict future stock prices to be on the downward trend, they would tend to buy put options or sell call options in order to make profits. Jayaraman et al (2001), Kawaller et al (2001), Pand and Poteshman (2006), and Fung (2007) found that the trading volume and open interest of option markets possess the explanatory power regarding the future volatility of stock prices. The trading volume and open interest of option markets may reflect investors' expectations of future movement in stock markets.…”

Section: The Research Modelsmentioning

confidence: 99%

“…Pan and Poteshman (2006) and Fung (2007) addressed that the option market information may reflect the future market volatility. Table 5 reports the empirical results generated upon the inclusion of option market information, such as the trading volume and open interest of option markets.…”

Section: Inclusion Of the Option Market Informationmentioning

confidence: 99%

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The Forecasting Power of the Volatility Index in Emerging Markets: Evidence from the Taiwan Stock Market

Yang¹,

Liu²

2012

IJEF

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This paper explores the predictive power of the volatility index (VIX) in emerging markets from December 2006 to March 2010. The results of the study show that the models including both the volatility indicator and the option market information have a stronger predictive power. The predictive power of the models is improved by 88% in explaining the future volatility of stock markets, much better than that of other models merely considering the volatility indicator. With respect to the trading information from different types of investors in option markets, the trading information from the foreign institutional investors in option markets demonstrates a significantly positive relationship with the stock market volatility. In addition, the results of this paper also reveal that the volatility index (TVIX) of Taiwan stock index options is a strong indicator of future stock market volatility. The TVIX outperforms the historical volatility and the GARCH volatility forecast in assessing the activities of Taiwan's stock market.

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Section: Inclusion Of the Option Market Informationsupporting

confidence: 80%

Section: The Research Modelsmentioning

confidence: 99%

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The Forecasting Power of the Volatility Index in Emerging Markets: Evidence from the Taiwan Stock Market

Yang¹,

Liu²

2012

IJEF

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“…In line with prior research in this area (e.g., Fung 2007;Taylor et al 2010), we use the following lead-lag regression model on our OTM put option price series for setup 1:…”

Section: Methodology: Revealing the Moderating Role Of Ambiguity (Setmentioning

confidence: 99%

Option implied ambiguity and its information content: Evidence from the subprime crisis

Driouchi

Trigeorgis

2015

Ann Oper Res

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This paper studies option investors' tendency to deviate from risk-neutrality around extreme financial events. We incorporate ambiguity into Black-Scholes theory and analyze the lead-lag association between option and stock markets during 2006-2008. Our findings from the Standard and Poor's 500 index options reveal that investors' option implied ambiguity moderates the lead-lag relationship between implied and realized volatility. We find that implied ambiguity contains predictive realized volatility information (beyond constant and stochastic implied volatilities), and that implied volatility is a less biased predictor of realized market variance when accounting for ambiguity in option pricing. We are also able to track changing investors' ambiguity perceptions (pessimism or optimism) prior to severe volatility events and document shifts in ambiguity aversion among put option holders in the period leading to the fall 2008 global market crash. Our results hold under multiple-priors and Choquet ambiguity specifications.

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“…Malz (2000) provided evidence that option-implied volatilities in a number of markets contain information about future large returns. Similarly, Fung (2007) found that option IVs gave an early warning sign and performed favorably compared to other measures in predicting future volatility during the 1997 Hong Kong stock market crash.…”

Section: Literaturementioning

confidence: 94%

Anatomy of a meltdown: The risk neutral density for the S&P 500 in the fall of 2008

Birru¹,

Figlewski²

2012

Journal of Financial Markets

105

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The information content of option implied volatility surrounding the 1997 Hong Kong stock market crash

Cited by 31 publications

References 41 publications

The Forecasting Power of the Volatility Index in Emerging Markets: Evidence from the Taiwan Stock Market

The Forecasting Power of the Volatility Index in Emerging Markets: Evidence from the Taiwan Stock Market

Option implied ambiguity and its information content: Evidence from the subprime crisis

Anatomy of a meltdown: The risk neutral density for the S&P 500 in the fall of 2008

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