Volatility information trading in the index options market: An intraday analysis

Heejin Yang, Ali Kutan and Doojin Ryu

International Review of Economics & Finance, 2019, vol. 64, issue C, 412-426

Abstract: By analyzing intraday volatility information trading according to the demand for options, we determine the types of investors that are informed about future spot market volatility and conduct volatility information trading in a highly liquid options market. Although the overall aggregate options demand does not predict intraday market volatility, the vega-weighted net demand of foreign investment firms conveys significant information about future volatility dynamics. By tracking the positions of all options market participants according to option moneyness, we find that foreign investment firms conduct volatility trading using highly levered options and that their intraday volatility information superiority is more prominent when they close their existing positions.

Keywords: Foreign investment firm; Market microstructure; Implied volatility; Intraday volatility; Volatility information (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:64:y:2019:i:c:p:412-426

DOI: 10.1016/j.iref.2019.07.006

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