Stock market momentum, business conditions, and GARCH option pricing models

Min-Hsien Chiang and Hsin-Yi Huang

Journal of Empirical Finance, 2011, vol. 18, issue 3, 488-505

Abstract: This paper examines the forecasting performance of GARCH option pricing models from a market momentum perspective, and the possible impacts of financial crises and business conditions are also examined. The empirical results demonstrate that market momentum impacts the forecasting performance of GARCH option pricing models. The EGARCH model performs better under downward market momentum, while the standard GARCH performs better under upward market momentum. In addition, parsimonious models generally outperform richly parameterized ones. The above findings are robust to financial crises, and the results further demonstrate that business conditions influence the forecasting performance of GARCH option pricing models.

Keywords: GARCH; Options; Market; momentum; Business; condition; Financial; crisis (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:18:y:2011:i:3:p:488-505

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