Information content of options trading volume for future volatility: Evidence from the Taiwan options market

Chuang-Chang Chang, Pei-Fang Hsieh () and Yaw-Huei Wang

Journal of Banking & Finance, 2010, vol. 34, issue 1, 174-183

Abstract: This study follows the approach of Ni et al. [Ni, S.X., Pan, J., Poteshman, A.M., 2008. Volatility information trading in the option market. Journal of Finance 63, 1059-1091] - based upon the vega-weighted net demand for volatility - to determine whether volatility information exists within the Taiwan options market. Our empirical results show that foreign institutional investors possess the strongest and most direct volatility information, which is realized by the delta-neutral options/futures trades. In addition, a few individual investors (less than 1% of individuals' trades) might be informed and realize their volatility information using the strangle strategy. Surprisingly, we find no evidence to support the predictive ability of the volatility demand from straddle trades, despite the widespread acknowledgement that such trades are sensitive to volatility.

Keywords: Option; volume; Volatility; Emerging; markets; Foreign; investors (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:34:y:2010:i:1:p:174-183

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