The Informational Role of Options Trading Volume in the Australian Index Options Markets
61 Pages Posted: 24 Jan 2010
Date Written: January 22, 2010
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: Suggested Citation