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Disagreement in Market Index Options

Publication ,  Journal Article
Salome, G; Tauchen, G; Li, J
Published in: Journal of Financial Econometrics
January 1, 2024

We generate new evidence on disagreement among traders in the S&P 500 options market from high-frequency intraday price and volume data. Inference on disagreement is based on a model where investors observe public information but agree to disagree on its interpretation; disagreement among investors is captured by the volume-volatility elasticity. For options, there are two natural variables related to disagreement: moneyness and tenor, which we relate to disagreement about the distribution of the market index at different quantiles and times. The estimated volume-volatility elasticity equals unity for options near the money and close to expiration, which is consistent with the case of no disagreement among investors. In contrast, the elasticity estimates decrease with increases in the absolute value of moneyness, indicating investors have a higher disagreement about rare events. Likewise, the elasticity decreases with increases in tenor, implying higher investors' disagreement about more distant events.

Duke Scholars

Published In

Journal of Financial Econometrics

DOI

EISSN

1479-8417

ISSN

1479-8409

Publication Date

January 1, 2024

Volume

22

Issue

4

Start / End Page

1006 / 1041

Related Subject Headings

  • Econometrics
  • 3802 Econometrics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1403 Econometrics
 

Citation

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Salome, G., Tauchen, G., & Li, J. (2024). Disagreement in Market Index Options. Journal of Financial Econometrics, 22(4), 1006–1041. https://doi.org/10.1093/jjfinec/nbad017
Salome, G., G. Tauchen, and J. Li. “Disagreement in Market Index Options.” Journal of Financial Econometrics 22, no. 4 (January 1, 2024): 1006–41. https://doi.org/10.1093/jjfinec/nbad017.
Salome G, Tauchen G, Li J. Disagreement in Market Index Options. Journal of Financial Econometrics. 2024 Jan 1;22(4):1006–41.
Salome, G., et al. “Disagreement in Market Index Options.” Journal of Financial Econometrics, vol. 22, no. 4, Jan. 2024, pp. 1006–41. Scopus, doi:10.1093/jjfinec/nbad017.
Salome G, Tauchen G, Li J. Disagreement in Market Index Options. Journal of Financial Econometrics. 2024 Jan 1;22(4):1006–1041.
Journal cover image

Published In

Journal of Financial Econometrics

DOI

EISSN

1479-8417

ISSN

1479-8409

Publication Date

January 1, 2024

Volume

22

Issue

4

Start / End Page

1006 / 1041

Related Subject Headings

  • Econometrics
  • 3802 Econometrics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1403 Econometrics