Determinants of Put-Call Disparity: Kospi 200 Index Options

Sam Kim, Jimmy Lockwood, Larry Lockwood and Hong Miao

Journal of Behavioral Finance, 2023, vol. 24, issue 3, 303-314

Abstract: Many studies find that traditional option pricing models fail to work in practice. The implied volatility smile is one example. In this study, we examine deviations of spot prices from prices implied by put-call parity for Korean KOSPI 200 index options, one of the most actively traded derivative products in the world. Deviations are significant and economically meaningful across different moneyness categories spanning deep-in-the-money to deep-out-of-the-money options. Determinants of put-call disparities for the KOSPI 200 index options include past spot return moments, cognitive biases, and prior option trading volume relative to spot trading volume. We show mispricing is more likely to occur after periods of extreme downturns in the stock market, implying demand for put options increases relative to call options when investors become more likely to insure against extreme loss. We also show that put-call disparity rates have predictive power for future spot returns due to overreaction of KOSPI 200 index option traders, rather than to information contained in option prices.

Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/15427560.2021.1974442 (text/html)
Access to full text is restricted to subscribers.

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:taf:hbhfxx:v:24:y:2023:i:3:p:303-314

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/hbhf20

DOI: 10.1080/15427560.2021.1974442

Access Statistics for this article

Journal of Behavioral Finance is currently edited by Brian Bruce

More articles in Journal of Behavioral Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().