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6307We mainly use the methods of linear regression, factor beta-based portfolio sorting, and Fama-Macbeth regression to study the different risk significance of the implied volatility smile shape of SSE 50ETF options. We divide the pattern of implied volatility into the risk of skewness and the risk of volatility level after removing the skewness. In empirical research, we find that when predicting the future returns of the SSE 50 Index, the coefficients of the level and slope of implied volatility of options are both significant. The greater the slope of the implied volatility smile is, the lower returns the SSE 50 Index will have in the future, and this effect will be very stable in the next 12 weeks and will begin to decay in the next 12 to 24 weeks. The implied volatility level is more durable in predicting the SSE 50 Index, and it is relatively stable for 24 weeks. When two risk variables are put in the same model to regress the future returns of the SSE 50 Index, we find that the values and significance of the two variables have not changed much. In the research of the pricing power of individual stocks, we confirm that the skewness of the smile has significant pricing power for individual stocks, while the volatility level has no significant pricing power for individual stocks. The results of these two studies indicate that the two measures extracted from the implied volatility risk of options represent two different market risks, and the prediction mechanisms of these two types of risks are also different. The implied volatility level represents the market’s view on the overall variant risk of the underlying assets. When increasing, it indicates that the market believes that the volatility risk of the SSE 50 Index will increase; and the slope of the implied volatility smile is the excavation of market participants’ information about future market trends. The increase in the implied volatility smile’s skewness implies a widening spread between OTM put option and ATM call option, and traders are more convinced that the downside risk of the market is expected to increase, which indicates that the underlying stock is falling, and the risk can be further transmitted to individual stocks. Through the empirical analysis, the research results are very instructive to the trading and hedging behavior of financial market traders. Based on the research results, traders can observe the current risk information to guide trading behavior and hedge risks more accurately.
/ Journals / Journal of Finance and Economics
Journal of Finance and Economics
LiuYuanchun, Editor-in-Chief
ZhengChunrong, Vice Executive Editor-in-Chief
YaoLan BaoXiaohua HuangJun, Vice Editor-in-Chief
Research on the Risk Information Contained in the Shape of Implied Volatility Smile of SSE 50ETF Options
Journal of Finance and Economics Vol. 46, Issue 04, pp. 155 - 168,封三 (2020) DOI:10.16538/j.cnki.jfe.2020.04.011
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Cite this article
Ni Zhongxin, Guo Jing, Wang Linyu. Research on the Risk Information Contained in the Shape of Implied Volatility Smile of SSE 50ETF Options[J]. Journal of Finance and Economics, 2020, 46(4): 155-169.
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