The information content of ETF options |
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| Institution: | 1. Cottrell College of Business, University of North Georgia, Dahlonega, GA 30597, USA;2. Neeley School of Business, Texas Christian University, Fort Worth, TX 76129, USA;3. College of Business, Colorado State University, Fort Collins, CO 80523, USA;4. McCoy College of Business, Texas State University, San Marcos, TX 78666, USA;5. CIB Wealth Management Co., Ltd., Shanghai, China |
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| Abstract: | We examine the information content of China's Shanghai Stock Exchange (SSE) 50 ETF options introduced in 2015. Trading volume and implied volatilities of calls versus puts differ markedly: trading volume is consistently higher for calls, and implied volatility is higher for puts. Put-call volume and implied volatility ratios are not good predictors of future SSE 50 returns. Implied volatility follows a right-skewed smirk across strike prices, indicating a tendency among option traders to turn bullish and expect the stock market to recover from the June 2015 market crash. The options market dominates the price discovery process, with an average information leadership share of 67%. Our price discovery results persist during the COVID outbreak. |
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