Macroeconomic Information and Implied Volatility: Evidence from Australian Index Options

Posted: 26 Aug 2013

See all articles by Hassan Tanha

Hassan Tanha

Victoria University

Michael J. Dempsey

Ton Duc Thang University (TDTU)

Terrence A. Hallahan

Victoria University

Date Written: August 26, 2013

Abstract

A key issue in understanding option pricing is the response of option implied volatility to macro-economic announcements. We use high frequency data on ASX SPI 200 Index Options to examine the response of option implied volatility, as well as higher moments of the underlying return distribution, to macroeconomic announcements. Additionally, we identify the response of the moments as a function of the moneyness of the options. Our findings suggest that in-the-money and out-of-the money options have different characteristics in their responses, leading to the conclusion that heterogeneity in investor beliefs and preferences affect option implied volatility through the state price density function.

Keywords: Implied Volatility, Options, Macroeconomic Information

JEL Classification: G13, G14, C58

Suggested Citation

Tanha, Hassan and Dempsey, Michael J. and Hallahan, Terrence A., Macroeconomic Information and Implied Volatility: Evidence from Australian Index Options (August 26, 2013). Available at SSRN: https://ssrn.com/abstract=2316122 or http://dx.doi.org/10.2139/ssrn.2316122

Hassan Tanha

Victoria University ( email )

Footscray Park
PO Box 14428
Melbourne, 8001
Australia

Michael J. Dempsey

Ton Duc Thang University (TDTU) ( email )

District 7
Ho Chi Minh City, 3001
Vietnam

Terrence A. Hallahan (Contact Author)

Victoria University ( email )

School of Accounting and Finance
300 Flinders Street
Melbourne, 8001
Australia

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