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The Information Imbedded in the Trading Volume of Currency Options
Yaffa MachnesGraduate School of Business AdministrationBar Ilan UniversityISRAEL
Email: [email protected]: 03-5353182 Tel: 08-9468544
References • Anthony, J.H. (1988). The interrelation of stock and option
market trading-volume data. Journal of Finance, 43, 949-961.
• Chakravarty, S., Gulen, H., & Mayhew, S. (2004). Informed trading in stock and option markets. Journal of Finance, June; 59(3): 1235-57.
• Easley, D., O'Hara, M., & Srinivas, P. S. (1998). Option volume and stock prices: Evidence on where informed traders trade. Journal of Finance, 53, 431-465.
• Sarwar, G. (2003). The interrelation of price volatility and trading volume of currency options. The Journal of Futures Markets, 23(7), 681-700.
The Model
R it - "representative" exchange rate on day t
cV ti - total volume of calls on US $ traded in TASE on day t
pVti - total volume of puts on US $ traded in TASE on day t
/pPCR cV Vt tti ii
1 2 pR ( )
c0R ( )V V(1) ln ln ln t
i t mit it
i t k
0 1 2pR ( )
R ( )VVc PCR(2) ln ln ln titit it
i t m
i t k
Table 1: Exchange Rate as a Function of Trading Volume of $ US Options: Augmented Dickey-Fuller Test Equation. Least Squares Method after logarithmic transformation. Regression coefficients multiplied by 10 .
Explanatory variable
On the trading day
Previous trading day
Constant-71.6(4.3)
-33.2(2.5)
Calls volume19.9(6.2)
8.8(3.3)
Puts volume-13.6(5.2)
-5.8(1.9)
F-statistics19.118.9
R squared0.040.01
n9641189
Durbin Watson
1.931.90
Numbers in parenthesis are t values
4
Table 2: Exchange Rate as a Function of PCR and Trading Volume of $ US Options: Augmented Dickey-Fuller Test Equation. Least Squares Method after logarithmic transformation. Regression coefficients multiplied by 10 .
Explanatory variable
On the trading day
Previous trading day
Constant-74.7(4.3)
-33.5(2.3)
Calls+puts volume
6.2(3.7)
2.9(2.1)
Put/call ratio
-15.3(5.7)
-6.5(2.9)
F5.45.2
R squared0.040.01
n9641189
Durbin-Watson
1.931.98
Numbers in parenthesis are t values
4