Information Content of Investors' Demand for Volatility

馮 紹權(Scott Fung), 蔡 蒔銓(Shih-Chuan Tsai)

Research output: Contribution to journalArticle

Abstract

This paper examines the information content of investors' demand for volatility in an option market where investors possess heterogeneous information of future volatility. Using comprehensive transaction data on the Taiwan options market during the period of financial crisis, we construct the vega-weighted net demand for volatility by heterogeneous investor types, and investigate whether volatility trading of certain investor group is more informative about future market-level volatility. We find that the vega demand of investors such as domestic institutional investors exhibits significant predictive power. Specifically, vega demand from domestic institutional investors using passive orders predicts future realized volatility. Moreover, vega demand from domestic institutional investors who open new positions predicts future realized volatility. Overall, our findings highlight the importance of investor heterogeneity in examining informativeness of volatility trading.
Original languageEnglish
Pages (from-to)1-44
Number of pages44
Journal期貨與選擇權學刊
Volume10
Issue number3
Publication statusPublished - 2017

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Investors
Information content
Vega
Institutional investors
Options markets
Realized volatility
Financial crisis
Transaction data
Taiwan
Predictive power
Informativeness

Keywords

  • Options Trading
  • Volatility
  • Heterogeneous Investors
  • 選擇權交易
  • 波動度
  • 異質投資人

Cite this

Information Content of Investors' Demand for Volatility. / 馮紹權(Scott Fung); 蔡蒔銓(Shih-Chuan Tsai).

In: 期貨與選擇權學刊, Vol. 10, No. 3, 2017, p. 1-44.

Research output: Contribution to journalArticle

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