How Does Investor Sentiment Affect Implied Risk-Neutral Distributions of Call and Put Options?

Wen-Ming Szu (), Yi-Chen Wang () and Wan-Ru Yang ()
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Wen-Ming Szu: Department of Money and Banking, National Kaohsiung First University of Science and Technology, Taiwan
Yi-Chen Wang: Department of Money and Banking, National Kaohsiung First University of Science and Technology, Taiwan
Wan-Ru Yang: Department of Finance, National University of Kaohsiung, Taiwan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2015, vol. 18, issue 02, 1-35

Abstract: This paper investigates the characteristics of implied risk-neutral distributions separately derived from Taiwan stock index call and put options prices. Differences in risk-neutral skewness and kurtosis between call and put options indicate deviations from put-call parity. We find that the sentiment effect is significantly related to differences between call and put option prices. Our results suggest the differential impact of investor sentiment and consumer sentiment on call and put option traders' expectations about underlying asset prices. Moreover, rational and irrational sentiment components have different influences on call and put option traders' beliefs.

Keywords: Implied risk-neutral distribution; put-call parity; investor sentiment; consumer sentiment; TAIEX options; G01; G13 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (5)

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DOI: 10.1142/S0219091515500101

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