Index option trading and equity volatility: Evidence from the SSE 50 and CSI 500 stocks

Cong Sui, Peter Lung and Mo Yang

International Review of Economics & Finance, 2021, vol. 73, issue C, 60-75

Abstract: Based on the proposed difference-in-difference design, we scrutinize the influence of stock derivatives on the underlying assets by differentiating the influence between stock futures and options. The empirical results indicate that option trading reduces equity volatility in the Shanghai Stock Exchange. The alleviation effect starts to show quickly after the introduction of SSE 50 ETF options. The component stocks in the index experience lower volatility than non-component stocks. We also document that the impact of option trading is stronger in downside volatility (bear markets) than upside volatility (bull markets). In addition, we conduct evolutionary trace analysis and show the empirical results are sensitive to the length of sample periods. This finding may explain the mixed conclusions in current literature.

Keywords: SSE 50 index; CSI 500 index; ETF option; Difference-in-difference; Downside risk (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056020303208
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:73:y:2021:i:c:p:60-75

DOI: 10.1016/j.iref.2020.12.034

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().