Overreactions in the options markets in Japan

Chikashi Tsuji

Applied Financial Economics Letters, 2006, vol. 2, issue 2, pages 115-121

Abstract: This study investigates the 'term structure’ of implied volatilities of the NIKKEI 225 index options in order to examine the existence of investors' overreaction in the options markets in Japan. According to the rational expectations theory, the implied volatility on a longer maturity option should move by less than 1% in response to a 1% move in the implied volatility of a shorter maturity option. However, the empirical analyses show that this elasticity turns out to be larger than suggested by the theory. These results from Japanese markets, indicating that long-maturity options tend to 'overreact’ to the new information in comparison with the short-maturity options, are similar to those found in the USA.

View list of references

Downloads: (external link)
http://taylorandfran ... &id=V277132X0403V87K (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Ordering information: This journal article can be ordered from
http://www.tandf.co. ... /titles/17446546.asp

Access Statistics for this article

Applied Financial Economics Letters is edited by Mark Taylor

More articles in Applied Financial Economics Letters from Taylor and Francis Journals
Series data maintained by Christopher F. Baum ().