Beware of Extreme Investor Sentiments! Indian Evidence on the Performance of Neuro-specific Options Volatility Trading Strategies on the Facets of COVID-19

Ansu Royit, Babu Jose and James Varghese

Journal of Emerging Market Finance, 2023, vol. 22, issue 3, 326-350

Abstract: This study investigates the dynamic relationship between noise trader sentiment and excessive volatility in the Indian financial market during the COVID-19 outbreak. It proposes novel options trading strategies to ensure profitability in times of irrational exuberance and to satisfy diverse investment requirements of volatility traders, which arise from the varying levels of stimulating neurotransmitters, namely dopamine and serotonin in the human body. Empirical results show that the incremental information content of sentiment measures is vital in forecasting future volatility and the proposed options trading strategies effectively accomplish the neuro-specific intentions of the traders during extreme volatility in the Indian equity market. JEL Codes: G12, G13

Keywords: Volatility; investor sentiment; NSE NIFTY 50 index; options volatility trading strategies; neurofinance; neuro-specific volatility trading strategies (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:22:y:2023:i:3:p:326-350

DOI: 10.1177/09726527231165820

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