Asymmetry in option implied volatility and yield: Evidence from China's ETF options market11Xiaoyijing Chen, PhD candidate. Research Interests: option pricing, financial derivatives. Siyuan Liu, master's student. Research Interests: option pricing, volatility model.Zailin Xu, PhD candidate. Research Interests: capital market, volatility model. Mei Yu, PhD, Professor, Doctoral Supervisor. Research Interests: capital market, risk management.,22Funding: This work was supported by “National Natural Science Foundation of China” (Grant number: 72073027); “National Natural Science Foundation of China” (Grant number: 72071046); “the Fundamental Research Funds for the Central Universities” in UIBE (Grant number: ZD6–01)

Xiaoyijing Chen, Siyuan Liu, Zailin Xu and Mei Yu

Pacific-Basin Finance Journal, 2024, vol. 85, issue C

Abstract: This paper analyzes the changes in implied volatility and positive/negative returns of options using data from the China 50 ETF options and the CSI 300 ETF options. We employs quantile regression and least squares methods to explore the asymmetry between volatility and returns in the Chinese options market under different market capacities and time periods. The study reveals significant volatility-return asymmetry in both the China 50 ETF and the CSI 300 ETF markets, indicating that negative returns have a stronger impact on implied volatility changes than positive returns during the same period. Additionally, in both markets, the lagged changes in implied volatility are found to be an important determinant of current implied volatility changes. Differences in the underlying assets covered by the options and investor structures may influence the mechanisms of implied volatility changes and the asymmetry between volatility and returns. Furthermore, since the outbreak of the pandemic, investors' sensitivity and caution toward market information may weaken the asymmetry between volatility and returns.

Keywords: Ption; Implied volatility; Asymmetric relation (search for similar items in EconPapers)
JEL-codes: C51 C58 G12 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:85:y:2024:i:c:s0927538x24001379

DOI: 10.1016/j.pacfin.2024.102386

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