Publication Type

Journal Article

Version

acceptedVersion

Publication Date

6-2023

Abstract

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.

Keywords

SPX options, market index, high-frequency data, disagreement, volume-volatility elasticity, public information

Discipline

Econometrics | Finance | Finance and Financial Management

Research Areas

Econometrics

Publication

Journal of Financial Econometrics

First Page

1

Last Page

36

ISSN

1479-8409

Identifier

10.1093/jjfinec/nbad017

Publisher

Oxford University Press

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1093/jjfinec/nbad017

Download

Share

COinS