BANK STOCK AND OPTION TRANSMISSIONS IN FINANCIAL CRISIS

Han-Ching Huang, Yong-Chern Su and Sheng-Jung Wu

The International Journal of Business and Finance Research, 2015, vol. 9, issue 5, 17-23

Abstract: We investigate bank stock and option transmissions during the financial crisis in 2008. Contemporaneous and lagged-one stock order imbalances have a significant impact on option returns. A time-varying GARCH model is employed to confirm the results. We develop an imbalance-based call (put) trading strategy that buys the call (put) if the previous day’s stock imbalance is positive, and sells the stock if the previous day’s stock imbalance is negative. The empirical results do not show a positive premium, which implies market efficiency between option and stock markets in financial crisis

Keywords: Order Imbalance; Market Efficiency; Investment Bank; Commercial Bank; Financial Crisis; Option (search for similar items in EconPapers)
JEL-codes: G01 G14 G21 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:ibf:ijbfre:v:9:y:2015:i:5:p:17-23

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