Information Content of Derivatives under Varying Market Conditions and Moneyness: The Case of S&amp;P CNX Nifty Index Options

Pathak, Rajesh; Bhattacharjee, Kaushik; Reddy, V. Nagi

doi:10.1177/0972150914564420

Cited by 6 publications

(8 citation statements)

References 23 publications

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“…The dummies for the stable and recovery periods take a value of 1 for the corresponding year's observations and 0 otherwise. Based on the movement of major indices reported in Figure 1, during the sample period of [2001][2002][2003][2004][2005][2006][2007][2008][2009][2010][2011][2012][2013][2014][2015][2001][2002][2003][2004][2005][2006][2007][2008] is categorized as a stable period, 2009-2011 as a crisis period and 2012-2015 as a recovery period, following Pathak et al (2015).…”

Section: Variablesmentioning

confidence: 99%

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Corporate cash holding during crisis and beyond: what matters the most

Ranajee

Pathak

2019

IJMF

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Purpose The purpose of this paper is to examine the cash holding of firms during a crisis and test the widely accepted determinants of corporate cash holding (CCH) for their consistency across periods of crisis, stability and recovery, and across firm categories, in the emerging market context of India. Design/methodology/approach The study employs panel data and Fama–Macbeth regression techniques on publicly listed ﬁrms during 2001–2015, amid controls for idiosyncratic factors. Further empirical analysis is carried out through the disaggregation of ﬁrms based on group affiliation, controlling stake of promoters, financial constraints and firm size. Findings The study reports that cash levels are significantly higher during crisis periods for Indian firms. Moreover, promoter holding is observed to be a strong predictor of CCH, which is an addition to the list of predictors in existing literature. Additionally, most of the predictors of cash holding turn out to be consistent through periods of financial crisis, stability and recovery. A firm’s age and growth prospects do not determine cash levels for Indian firms; however, cash-flow volatility, firm size, leverage and non-cash working capital requirements help to determine the cash levels of the firm consistently through different periods. Group-affiliated firms are less likely to engage in cash accumulation as opposed to firms that are large and financially constrained and have high promoter stakes. Originality/value The study is unique because it examines the consistency of determinants of cash holding across good and turbulent times and across firm classifications. Moreover, the study uses a broad sample of firms and investigates the topic for a relatively long period in an emerging market setup.

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Section: Variablesmentioning

confidence: 99%

“…stable, crisis and recovery) based on the movement of the broad-based Indian stock market indices (i.e. Sensex and Nifty50), following Pathak et al (2015), and compare average cash holdings in different time periods.…”

Section: Introductionmentioning

confidence: 99%

Corporate cash holding during crisis and beyond: what matters the most

Ranajee

Pathak

2019

IJMF

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“…They report ATM implied volatilities generally outperforming other measures of volatility forecasts (defined by historical stock returns, ATM implied volatilities and model-free volatility expectations) for every firm. Pathak et al (2015) examine the information content of options market using S&P CNX Nifty Index options traded on NSE across options moneyness classes and market trends. They report informed traders using ATM options to optimize their portfolio returns.…”

Section: Literature Reviewmentioning

confidence: 99%

Going European from American: does style matter?

Pathak

Kumar

Ranajee

2017

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Purpose The purpose of this paper is to examine the cross-sectional predictive power and the information content of volatility smirks for future stock returns using single stock options. Design/methodology/approach The study uses Fama-Macbeth procedure and portfolio approach to investigate the predictability and informativeness in a setup when options settlement style is changed from American to European. Findings The study reports that the volatility smirk of European style options, unlike American style options, predict the underlying cross-sectional equity returns. Firms with steepest volatility smirk underperform firms with flatter volatility smirks, by an average of 3.28 and 4.01 per cent annually for American and European options, respectively. The results are robust to the control of idiosyncratic and systematic risk factors. Practical implications The results confirm that a trader with negative information prefers to trade out-of-the-money put options. The more pronounced results of European options designate the trader’s preference to less risky European style stock options. Results are robust and signify the delay of equity market in incorporating information impounded in the volatility smirk. Originality/value Very few studies examine smirk and returns relationship and to the best of the authors’ knowledge, no study exists that examine the unique case of change in options style and its role in affecting relationship between smirk and future returns.

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“…Pathak, Bhattacharjee and Reddy (2015) investigated and analyzed the information content of index options traded on the S&P CNX Nifty Index using bivariate vector autoregression (VAR) model. The study considered different market conditions like uptrend, downtrend and recovery phases and has also given due attention to moneyness of the options.…”

Section: Literature Reviewmentioning

confidence: 99%

Determinants of In-the-money Expiration of Call Option Contracts—An Empirical Evidence from Call Options on Nifty 50 Index

Sudhakar

Srikanth

2016

Global Business Review

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Increased integration of stock markets with other stock markets in the world and other segments of domestic and foreign financial markets is the fundamental reason for the increased volatility in the Indian stock market. Though volatility is an instinct behaviour of stock market, its reasonable prediction can help an investor in making a profitable investment plan. Research on volatility measurement and forecasting is as old as the existence of stock markets. Ex post measures of volatility have lost their significance in the light of evolution of ex-ante measures of volatility, especially, ‘Implied volatility’. Implied volatility can be estimated with the help of option pricing models. The present study examines the role of various determinants of the probability of exercising call options. Volatility, one of the key elements of option pricing, has been measured in three different variants, that is, historical volatility, realized volatility and implied volatility. Probit and Logit model are commonly used in qualitative regression estimation and they are applied to estimate the probability of exercising call options. The results of the analysis brings out the fact that neither the historical volatility nor the Black- and Scholes-model-based implied volatility can demonstrate significant influence on the estimation of probability of exercising call options. Realized volatility based the probability of exercising call options has greater magnitude of impact on Nifty 50 Index returns compared to that of historical volatility and implied volatility based probability of exercising call options. In the estimation of probability of exercising call options, Logit model outperforms the Probit model. The comparatively heavy fat-tailed distribution of Logit model is attributable to the better performance of the model.

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Information Content of Derivatives under Varying Market Conditions and Moneyness: The Case of S&P CNX Nifty Index Options

Cited by 6 publications

References 23 publications

Corporate cash holding during crisis and beyond: what matters the most

Corporate cash holding during crisis and beyond: what matters the most

Going European from American: does style matter?

Determinants of In-the-money Expiration of Call Option Contracts—An Empirical Evidence from Call Options on Nifty 50 Index

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