The Informational Role of Options Trading Volume in the Australian Index Options Markets

61 Pages Posted: 24 Jan 2010

See all articles by Xiaoming Li

Xiaoming Li

Massey University - School of Economics and Finance (Albany)

Lawrence Rose

affiliation not provided to SSRN

Klaus Buhr

Massey University - School of Economics and Finance; UNITEC Institute of Technology

Date Written: January 22, 2010

Abstract

The contemporaneous call options volume have a significant strong positive feedback effect on the implied volatility, but the contemporaneous feedback effect of volume on the TARCH volatility is insignificant. The contemporaneous feedback effects from the implied volatility and the TARCH volatility to the call options volume are positive, significant and strong. Our results indicate that market forces, such as speculation and arbitrage, in the S&P/ASX 200 call options market operate effectively to produce quick and strong interactions between call options volume and volatility. The bi-directional causality (or feedback) between call options volume and implied volatility or TARCH volatility. The direction of causality from implied volatility or TARCH volatility to call options volume is significant, implying lagged volatilities cause current volume to change. The causality from call options volume to implied volatility or TARCH volatility exists but is relatively weak. Our results indicate that lagged volatility values are good predictors of volume levels, but lagged volume levels are weak predictors of implied volatility and TARCH volatility values.

Keywords: Option Volume Volatility

JEL Classification: C22, C53, G14, G15

Suggested Citation

Li, Xiaoming and Rose, Lawrence and Buhr, Klaus, The Informational Role of Options Trading Volume in the Australian Index Options Markets (January 22, 2010). Finance and Corporate Governance Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1540710 or http://dx.doi.org/10.2139/ssrn.1540710

Xiaoming Li

Massey University - School of Economics and Finance (Albany) ( email )

Private Bag 102904
North Shore
Auckland, 0745
New Zealand
+64 9 4140800 ext. 43177 (Phone)
+64 9 441 8177 (Fax)

Lawrence Rose

affiliation not provided to SSRN ( email )

Klaus Buhr (Contact Author)

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand
+6494140800ext9253 (Phone)
+6494418177 (Fax)

UNITEC Institute of Technology ( email )

School of Accountancy, Law and Finance
Mount Albert
Auckland
New Zealand
8494180 ext 7016 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
90
Abstract Views
1,053
rank
283,956
PlumX Metrics