Are broad market shocks anticipated by investors? Evidence from major equity and index options markets

Spyros Spyrou

International Review of Financial Analysis, 2011, vol. 20, issue 3, 127-133

Abstract: This paper examines trading activity in five index options markets before significant price shocks in the underlying asset (S&P100, FTSE100, CAC40, DAX30, and AEX). The results indicate abnormal call and put option trading volume before price shocks for a large number of cases, implying that market participants anticipate shocks and use the options market as the venue for their trading. This pattern is similar for all markets and persistent for three different pre-event periods (10, 20, and 30Â days), two different periods used to calculate the benchmark period trading volume (100 and 140Â days), and of whether open interest is used instead of trading volume. Further tests suggest that investors may use both long and short strategies.

Keywords: Price; shocks; Market; anticipation; Option; trading; volume (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:20:y:2011:i:3:p:127-133

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