An empirical study on the characterization of implied volatility and pricing in the Chinese option market

Investment Behavior of Foreign Institutional Investors and Implied Volatility Dynamics: An Empirical Study on the Indian Equity Derivatives Market

“…The Indian capital market, which is still a semi-efficient capital market, is dominated by Foreign Institutional Investors (FIIs) trading in the equity market, which accounts for about one-third of the total trading volume on each trading day (Ryu et al 2023). Therefore, the trading behavior of FIIs has a significant role in the movement of asset price in the Indian capital market (Fan and Feng 2022), especially in the derivatives segment where traders rely heavily on expected volatility rather than on asset fundamentals (Vardhan and Sinha 2016). Some of the existing literature has established a significant relationship between institutional investors' behavior and the expected volatility of the security market from developed economies (Venkatesh et al 2021).…”

“…In practice, it can be difficult to determine whether institutional investors are intentionally manipulating implied volatility or whether their trading activity is simply responding to market conditions (Fan and Feng 2022). Regulators and market participants may use a variety of tools, such as market surveillance and analysis of trading patterns, to identify potential cases of volatility manipulation (Mixon 2002).…”

“…For investors, stock mispricing can have serious repercussions because it may result in unforeseen losses or missed possibilities for gain (Pranesh et al 2017). For instance, if an option buyer overpays for a contract because the implied volatility is overstated, they may incur more losses than anticipated if the option expires out of the money (Fan and Feng 2022). In cases involving options trading and volatility, the Securities and Exchange Board of India (SEBI) has also taken enforcement action against people and organizations suspected of engaging in price manipulation.…”