Chuang, I. Y., Lai, J. Y., Wang, Y. C., and Xue, A. J. 2014. Information Content of Nonsynchronous Trading for Taiwan Stock Index Options. NTU Management Review, : 1-28. https://doi.org/10.6226/NTURM2014.AUG.D06
I-Yuan Chuang, Professor, Department of Finance, National Chung Cheng University
Jing-Yi Lai, Associate Professor, Department of Finance, National Chung Cheng University
Ya-Ching Wang, Ph.D. Candidate, Department of Finance, National Chung Cheng University
Ai-Jie Xue, Master, Department of Finance, National Chung Cheng University
Abstract
The study investigates whether the extension of trading hours for Taiwan Stock Index Options contains information about the dynamics of future spot returns. Assuming that useful information is retrievable from the option-implied volatility, we found that the information content from the pre-open options trading is significantly negative related to the overnight returns in the spot market. This implies that a lower overnight spot return is expected because informed traders might react negatively to such private information from pre-open options trading. The pre-open option trades also contain useful information in explaining subsequent spot returns up to 15 minutes during the trading day, while the size and significance of the impacts decrease as the trade continues. No significant relationship is evident between information content in post-close options trading and spot returns on the following trading day.
Keywords
nonsynchronous tradingindex optionsimplied volatility