The Relationship between Individual Investor Sentimentand Option Returns: Evidence from TAIEX Options

• Main Authors: Tzu-Han Tai, 戴子涵
• Other Authors: Ming- Chun Wang
• Format: Others
• Language: en_US
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/07819629314696535875

碩士 === 國立高雄第一科技大學 === 金融理財研究所 === 98 === This study is to evidence whether individuals buy or sell options in concert. Using the database of Taiwan futures exchange over 2002-2004, we examine the trading behavior of the individual investors. We find that systematic retail trading explains returns move in the opposite direction for in-the-money and out-of-the-money options, especially if these options are also with lower portfolio size. That is, if retail sentiments become larger fluctuations, individual investors are more likely to make misjudgments and cause a decline in investment returns. However, only partial macroeconomic variables (i.e., market return in excess of the risk-free rate, monthly growth in industrial production, change in the risk premium, change in the term spread, unexpected and expected inflation) can explain these results. Overall, the factors studied here support the importance of retail sentiment in the formation of characteristic-sorted options. If this formation of investor sentiment used for this study, in fact, be used to study trading behavior, this formation can become a necessary tool in future research.