Illiquidity Premium and Volatility Spread in Stock Options Markets

• Main Authors: Zih-Ying Lin, 林姿瑩
• Other Authors: 張傳章
• Format: Others
• Language: en_US
• Published: 2017
• Online Access: http://ndltd.ncl.edu.tw/handle/rx9q2g

博士 === 國立中央大學 === 財務金融學系 === 105 === This essay contains two studies on the option illiquidity premium and volatility spread in the stock option market. One is the relationship between option illiquidity and expected option returns under information environments and another is volatility spread and expected option returns. First Essay: The Impacts of Asymmetric Information and Short Sales on the Illiquidity Risk Premium in the Stock Option Market The illiquidity risk premium hypothesis implies the existence of a positive relationship between illiquidity in the option markets and option returns. Based on numerous studies within the extant literature examining the roles of informed traders in the option markets,we explore the ways in which asymmetric information and short sales can affect the illiquidity risk premium hypothesis. Our findings reveal that the illiquidity risk premium is higher for the options of those firms with higher information asymmetry, as well as those firms with higher short sales demand or supply. These results are found to be particularly robust for short-term options contracts. Second Essay: Implied Volatility Spreads and Future Options Returns While numerous studies have documented that call-put implied volatility spreads positively predict future stock returns,the predictive relationship is recently found to be negative for future call option returns. We further investigate whether and how the predictive relationship for options returns is influenced by various information events and conditions. In addition to confirming the existence of the opposite predictive relationships for both call and put returns, our empirical results reveal that the predictive relationships are stronger during periods of earnings announcement and/or high sentiment. In addition, we find that investors learn from informed trading and revise their predictability bias by examining the impacts of information asymmetry, stock liquidity, and options liquidity on the predictive relationships.