Information contents of intraday SSE 50 ETF options trades

We propose a model‐guided option‐implied ambiguity measure to capture uncertainty regarding the return distribution of a risky asset underlying a set of options, and investigate its predictive power on the asset return. A representative investor's ambiguous beliefs or prior distributions on the underlying asset returns are extracted from the market prices of options, the expected volatility of which is then defined as the option‐implied ambiguity and is calculated in line with Brenner and Izhakian. Simulated paths of the calibrated models are utilized to compute all pertinent probability characteristics from a forward‐looking perspective. The empirical results with SSE 50 ETF options indicate that the proposed option‐implied ambiguity has strong predictive power for future returns of SSE 50 ETF. Out‐of‐sample tests also verify the significant predictive ability of the option‐implied ambiguity to the equity returns.

Section: Datamentioning

confidence: 99%

Option‐Implied Ambiguity and Equity Return Predictability

Liu,

Chen

et al. 2024

“…Hence, one can expect information incorporation efficiency in the options market to be much higher than that in the spot market and Type III violations to be more frequent subsequently. Meanwhile, most professional options traders in China are informed and accessible to private information (Ahn et al, 2019;Luo et al, 2020Luo et al, , 2022, which contributes to immediate price changes in response to shocks in the options market. 2 Moreover, speculative trading activities account for a substantial proportion of Chinese options trading.…”

Section: Institutional Backgroundmentioning

confidence: 99%

“…On the same day, the SSE increased its position limits for options trading, preventing options market investors from opening large positions. Such regulatory policies in futures and options markets significantly affected the trading activities and market microstructure (Ahn et al, 2019; Luo et al, 2022).…”

Section: Institutional Backgroundmentioning

confidence: 99%

Price monotonicity violations during stock market crashes: Evidence from the SSE 50 ETF options market

Luo,

Ryu,

Tao

et al. 2023

Self Cite

This study empirically tests whether price violations, as defined by Bakshi, Cao, and Chen (2000), show different patterns in response to market shocks. Specifically, we analyze the Chinese options market during a period covering a stock market crash and a series of trading restrictions in the Chinese derivatives markets. Our results confirm the significant changes of the defined violations in the face of unexpected shocks, and more importantly, we interpret such variations from the perspective of information spillovers. Our findings suggest that the stock market crash prompts informed traders in the Chinese options market to frequently adjust their positions on put options, exacerbating the misunderstandings and overreactions to new information. Further, the regulatory shock in the derivatives markets diminishes the efficiency of information incorporation for both options and spot markets but does not affect the dominance of the Chinese options market in price discovery.

Frequent Trading and Investment Performance: Evidence From the KOSPI 200 Futures Market

Ryu,

Webb,

2024

This study explores whether frequent trading is profitable to investors in an emerging stock index futures market. Our analyses, based on long‐term data from 2010 to 2023, indicate that the effect of trading frequency differs across investor types and market conditions. Only some domestic institutions gain additional profits from more frequent trading, and such a tendency is apparent when the futures price falls and when the futures market volatility is low. Foreign investors experience losses as they trade more when the market is bearish and are frequently net long. The performance of domestic individuals does not depend on their trading frequency in general; however, they lose more from trading when the market is bearish and when the market is less volatile.