Did option traders predict the crash from the volatility skewness？Evidence in Taiwan and U.S. markets.

• Main Authors: Yu-sheng Lin, 林裕勝
• Other Authors: Ruei-Lin Lee
• Format: Others
• Language: zh-TW
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/21811294484478813027

碩士 === 朝陽科技大學 === 財務金融系碩士班 === 96 === A priori one would expect stock market returns to show a left-skewed distribution: as the market falls, so it becomes more volatile. This paper examines how the skewness of the smile changes over time and whether that is either a prediction of market movements or reflects past movements. We use out-of-the-money calls and puts to measure the skewness and compare it in the U.S. before and after the subprime crisis with Taiwan. Our finding suggests a left-skewed distribution for both two markets. After the crisis, the impact of skewness on return is negative in the U.S. market but positive in Taiwan. It implies that U.S. traders became more pessimistic after the crisis, increasing the degree of leftskewness of the smile, but traders in Taiwan were more optimistic and in the short-term reacted to the crisis by slightly increasing the rightskewness of the smile. In addition, after the crisis, there are feedbacks of skewness and return in both two markets. On the other hand, the U.S. stock market causes the Taiwan stock market, suggesting the spillover effect and contagion effect.