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postgraduate thesis: Analysts, options trading and equity short selling

TitleAnalysts, options trading and equity short selling
Authors
Advisors
Advisor(s):Chan, KLin, TC
Issue Date2014
PublisherThe University of Hong Kong (Pokfulam, Hong Kong)
Citation
Lu, X. [盧曉瓏]. (2014). Analysts, options trading and equity short selling. (Thesis). University of Hong Kong, Pokfulam, Hong Kong SAR. Retrieved from http://dx.doi.org/10.5353/th_b5270543
AbstractThis dissertation consists of two empirical essays on the interactions among three financial markets, namely, the stock market, the options market, and the equity lending market. In the first essay, we study the role of analysts and options traders in the information transmission between options and stock markets. We first show that the predictive power of option-implied volatilities (IVs) on stock returns is more than doubled around analyst-related events, indicating a significant proportion of the options predictability on stock returns comes from informed options traders’ information about upcoming analyst-related news. We examine three explanations for this finding: tipping, reverse tipping and common information. We find that analyst tipping to options traders is the most consistent explanation of these predictive patterns. In the second essay, we examine the relationship between put options and short sales. We are able to separate the speculative demand of informed traders from the hedging demand of options market makers in the lending market. We find that the put option bid-ask spread and put option trading volume both increase with the equity lending fee. However, we also find that put option trading volume decreases with the lending fee for banned stocks during the 2008 Short-Sale Ban period, i.e., when only options market makers can short. These findings suggest that when informed traders are allowed to short, their speculative demand dominates and drives the substitution that is observed between the two financial instruments. Nevertheless, the “complementarity” of these financial instruments might prevail when options market makers significantly reduce the supply of put options because of high hedging costs.
DegreeDoctor of Philosophy
SubjectOptions (Finance)
Short selling
Stocks
Dept/ProgramEconomics and Finance
Persistent Identifierhttp://hdl.handle.net/10722/206666

 

DC FieldValueLanguage
dc.contributor.advisorChan, K-
dc.contributor.advisorLin, TC-
dc.contributor.authorLu, Xiaolong-
dc.contributor.author盧曉瓏-
dc.date.accessioned2014-11-25T03:53:14Z-
dc.date.available2014-11-25T03:53:14Z-
dc.date.issued2014-
dc.identifier.citationLu, X. [盧曉瓏]. (2014). Analysts, options trading and equity short selling. (Thesis). University of Hong Kong, Pokfulam, Hong Kong SAR. Retrieved from http://dx.doi.org/10.5353/th_b5270543-
dc.identifier.urihttp://hdl.handle.net/10722/206666-
dc.description.abstractThis dissertation consists of two empirical essays on the interactions among three financial markets, namely, the stock market, the options market, and the equity lending market. In the first essay, we study the role of analysts and options traders in the information transmission between options and stock markets. We first show that the predictive power of option-implied volatilities (IVs) on stock returns is more than doubled around analyst-related events, indicating a significant proportion of the options predictability on stock returns comes from informed options traders’ information about upcoming analyst-related news. We examine three explanations for this finding: tipping, reverse tipping and common information. We find that analyst tipping to options traders is the most consistent explanation of these predictive patterns. In the second essay, we examine the relationship between put options and short sales. We are able to separate the speculative demand of informed traders from the hedging demand of options market makers in the lending market. We find that the put option bid-ask spread and put option trading volume both increase with the equity lending fee. However, we also find that put option trading volume decreases with the lending fee for banned stocks during the 2008 Short-Sale Ban period, i.e., when only options market makers can short. These findings suggest that when informed traders are allowed to short, their speculative demand dominates and drives the substitution that is observed between the two financial instruments. Nevertheless, the “complementarity” of these financial instruments might prevail when options market makers significantly reduce the supply of put options because of high hedging costs.-
dc.languageeng-
dc.publisherThe University of Hong Kong (Pokfulam, Hong Kong)-
dc.relation.ispartofHKU Theses Online (HKUTO)-
dc.rightsThe author retains all proprietary rights, (such as patent rights) and the right to use in future works.-
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subject.lcshOptions (Finance)-
dc.subject.lcshShort selling-
dc.subject.lcshStocks-
dc.titleAnalysts, options trading and equity short selling-
dc.typePG_Thesis-
dc.identifier.hkulb5270543-
dc.description.thesisnameDoctor of Philosophy-
dc.description.thesislevelDoctoral-
dc.description.thesisdisciplineEconomics and Finance-
dc.description.naturepublished_or_final_version-
dc.identifier.doi10.5353/th_b5270543-

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