The Informational Role of Options Prices in China

37 Pages Posted: 8 Mar 2018 Last revised: 16 Oct 2019

See all articles by Jimmy Lockwood

Jimmy Lockwood

Southern Illinois University - Department of Finance

Hong Miao

Colorado State University, Fort Collins - Department of Finance & Real Estate

Sanjay Ramchander

Colorado State University, Fort Collins - Department of Finance & Real Estate

Dongxiao Yang

Independent

Date Written: January 25, 2018

Abstract

The introduction of European style equity options in 2015 in China signaled a landmark moment in the development of its financial markets. We examine intraday implied volatility patterns and estimate the contribution of the Shanghai Stock Exchange (SSE) 50 ETF options to price discovery using the information leadership share (ILS) methodology. Notable differences are found in implied volatilities of puts and calls, consistent with the theory of event trading, while implied volatility patterns for each moneyness group contradict the crash-a-phobia phenomenon documented in previous studies. Furthermore, we find the options market dominates the price discovery process, with an average ILS of 67%. The price leadership evolves over time as investors use options to circumvent trading restrictions placed on the stock market.

Keywords: SSE 50 ETF options, implied volatility, information leadership share

JEL Classification: C13, G14, G15

Suggested Citation

Lockwood, Jimmy and Miao, Hong and Ramchander, Sanjay and Yang, Dongxiao, The Informational Role of Options Prices in China (January 25, 2018). Available at SSRN: https://ssrn.com/abstract=3130502 or http://dx.doi.org/10.2139/ssrn.3130502

Jimmy Lockwood (Contact Author)

Southern Illinois University - Department of Finance ( email )

Mail Code 4626
Carbondale, IL 62901-4626
United States
682.305.6095 (Phone)

HOME PAGE: http://https://business.siu.edu/people/finance/lockwood.html

Hong Miao

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States

Sanjay Ramchander

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States
970-491-6681 (Phone)

Dongxiao Yang

Independent ( email )

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