TY - JOUR
T1 - Do investor sentiment, weather and catastrophe effects improve hedging performance? Evidence from the Taiwan options market
AU - Yang, Chih Yuan
AU - Jhang, Ling Jhen
AU - Chang, Chia Chien
PY - 2016/4/1
Y1 - 2016/4/1
N2 - This study examines the usefulness of incorporating investor sentiment, weather, and catastrophe effects into the benchmark volatility model for an effective hedging strategy in the Taiwan options market. The empirical results indicate that investor sentiment, as measured by the option volatility index (VIX) and put-call open interest ratio (PCO), and the catastrophic factors of earthquakes (EQ) can help explain realized volatility and that the PCO has the best predictive ability. Incorporating investor sentiment and weather effects improves the hedging performance of options. VIX and changes in cloud cover (δCC) have significant improvement level for hedging performance, the highest of which are 0.44% and 5.36%, respectively.
AB - This study examines the usefulness of incorporating investor sentiment, weather, and catastrophe effects into the benchmark volatility model for an effective hedging strategy in the Taiwan options market. The empirical results indicate that investor sentiment, as measured by the option volatility index (VIX) and put-call open interest ratio (PCO), and the catastrophic factors of earthquakes (EQ) can help explain realized volatility and that the PCO has the best predictive ability. Incorporating investor sentiment and weather effects improves the hedging performance of options. VIX and changes in cloud cover (δCC) have significant improvement level for hedging performance, the highest of which are 0.44% and 5.36%, respectively.
KW - Catastrophe
KW - Hedging performance
KW - Investor sentiment
KW - Taiwan options market
KW - Weather
UR - http://www.scopus.com/inward/record.url?scp=84960412718&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84960412718&partnerID=8YFLogxK
U2 - 10.1016/j.pacfin.2016.03.002
DO - 10.1016/j.pacfin.2016.03.002
M3 - Article
AN - SCOPUS:84960412718
VL - 37
SP - 35
EP - 51
JO - Pacific Basin Finance Journal
JF - Pacific Basin Finance Journal
SN - 0927-538X
ER -