Moneyness and the response of the implied volatilities to price changes: The empirical evidence from HSI options

Kam C. Chan, Tsz Wan Cheng, Peter P. Lung

Research output: Journal article publicationJournal articleAcademic researchpeer-review

5 Citations (Scopus)

Abstract

We examine the intertemporal and asymmetric response from implied volatility changes to price changes under different levels of option moneyness and evaluate the cause-effect relation between implied volatilities and price changes. Based on Hang Seng Index (HSI) options transaction data, we find that asymmetric responses are essentially driven by near-term out-of-the-money call options. In addition, options trading activity affects the response from volatility changes to equity price changes and information is more likely to travel from equity to option markets. We also pool call and put options together to reexamine the relation and find that options with higher exercise price show more significant results in the analysis of asymmetric responses.
Original languageEnglish
Pages (from-to)527-553
Number of pages27
JournalPacific Basin Finance Journal
Volume11
Issue number4
DOIs
Publication statusPublished - 1 Aug 2003

Keywords

  • Asymmetric responses
  • Cause-effect relation
  • HIS options
  • Implied volatility

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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