Testing the New Buying Pressure Hypothesis During the Asian Financial Crisis: Evidence from Hang Seng Index Options

Abstract

We investigate net buying pressure in the Hong Kong Hang Seng Index options market during the Asian financial crisis from July 1997 to August 1998. Our findings suggest that during this period, the dramatic changes in volatility overwhelmed the dynamics of supply and demand in the options market. The extremely high realized volatility drove the market participants' expectations about future market volatility in early months of the crisis. Findings during the late-crisis, pre-crisis, and post-crisis periods are consistent with the net buying pressure hypothesis.

Keywords: Asian financial crisis, buying pressure

JEL Classification: G15