Investigate Net-buying-pressure Hypotheses in Option Markets – New Theory and Methodology

• Main Authors: Wang, Shih-Hua, 王世驊
• Other Authors: Chen, Chao-Chun
• Format: Others
• Language: en_US
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/67616154249390816629

碩士 === 東海大學 === 財務金融學系 === 100 === Two important hypotheses about the relation between net buying pressure and the shape of the implied volatility function are the direction-learning hypothesis and volatility-learning hypothesis. The former asserts that investors buy call/put options if the underlying asset price is anticipated to rise/fall, whereas the latter declares that investors buy call and put options once volatility shocks are expected. Since the conditions adopted in the literature to inspect the two hypotheses are mutually exclusive, the two hypotheses cannot be found out concurrently. It motivates us to investigate the possibility that investors make trading decisions based on both directional shocks and volatility shocks by using the one-minute-basis intraday data of the TAIEX option in 2011. Specifically, we develop a new method to decompose the net buying pressure of option trading into two components: the net buying pressure due to directional shocks and that due to volatility shocks, and test direction-learning and volatility-learning hypotheses independently based onthe two types of net buying pressures. In contrast with the findings in the literature, we find that the shape of the implied volatility curve for TAIEX call options changes from a smirk to un-smile during the sovereign debt crisis. Empirical evidences also show that net-buying-pressure hypotheses can be valid simultaneously, which is very different from the findings in the literature.