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The information content of ETF options

Jimmy Lockwood, Larry Lockwood, Hong Miao, Sanjay Ramchander and Dongxiao Yang

Global Finance Journal, 2022, vol. 53, issue C

Abstract: We examine the information content of China's Shanghai Stock Exchange (SSE) 50 ETF options introduced in 2015. Trading volume and implied volatilities of calls versus puts differ markedly: trading volume is consistently higher for calls, and implied volatility is higher for puts. Put-call volume and implied volatility ratios are not good predictors of future SSE 50 returns. Implied volatility follows a right-skewed smirk across strike prices, indicating a tendency among option traders to turn bullish and expect the stock market to recover from the June 2015 market crash. The options market dominates the price discovery process, with an average information leadership share of 67%. Our price discovery results persist during the COVID outbreak.

Keywords: SSE 50 ETF options; Price discovery; Information leadership share; Implied volatility; COVID-19 (search for similar items in EconPapers)
JEL-codes: G13 G14 G15 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.gfj.2022.100725

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