재무연구 제 권 호 (2008년 5월)
Asian Review of Financial Research, Vol., No..
pp.1989~2019
pp.1989~2019
Option-Trading Activity and Stock Price Volatility : A Regime-Switching GARCH Model
Ki Yool Ohk Department of Business Administration, Pusan National University, Korea
Woo Ae Jang Department of Business Administration, Pusan National University, Korea
Yong H. Kim Department of Finance, University of Cincinnati, Cincinnati, OH 45221-0195
In this paper, we examine whether greater option-trading activity (volume and open interest) is associated with greater stock market volatility using a regime-switching GARCH model. We first partition KOPSI 200 option volume and open interest into expected, unexpected, and moving average components to highlight how differently stock market volatility is related to forecastable optiontrading activity and unexpected (informed) option volume. Next, we classify option-trading activity based on moneyness to study how each class is related to stock market volatility. Further, we partition stock market into volatile and stable regimes to investigate how informed option traders react differently in the option market according to the state of the stock market. Empirical results show that informed traders prefer to highly leveraged option in volatile market, while they prefer to relatively less leveraged options in stable market.
Ki Yool Ohk
Woo Ae Jang
Yong H. Kim
In this paper, we examine whether greater option-trading activity (volume and open interest) is associated with greater stock market volatility using a regime-switching GARCH model. We first partition KOPSI 200 option volume and open interest into expected, unexpected, and moving average components to highlight how differently stock market volatility is related to forecastable optiontrading activity and unexpected (informed) option volume. Next, we classify option-trading activity based on moneyness to study how each class is related to stock market volatility. Further, we partition stock market into volatile and stable regimes to investigate how informed option traders react differently in the option market according to the state of the stock market. Empirical results show that informed traders prefer to highly leveraged option in volatile market, while they prefer to relatively less leveraged options in stable market.
