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Testing The Net Buying Pressure Hypothesis During The Asian Financial Crisis: Evidence From Hang Seng Index Options

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  • Kam C. Chan
  • Louis T. W. Cheng
  • Peter P. Lung

Abstract

We investigate net buying pressure in the Hong Kong Hang Seng Index options market during the Asian financial crisis from July 1997 to August 1998. Our findings suggest that during this period, the dramatic changes in volatility overwhelmed the dynamics of supply and demand in the options market. The extremely high realized volatility drove market participants' expectations about future market volatility in the early months of the crisis. Findings during the late‐crisis, pre‐crisis, and post‐crisis periods are consistent with the net buying pressure hypothesis.

Suggested Citation

  • Kam C. Chan & Louis T. W. Cheng & Peter P. Lung, 2006. "Testing The Net Buying Pressure Hypothesis During The Asian Financial Crisis: Evidence From Hang Seng Index Options," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 29(1), pages 43-62, March.
    • Handle: RePEc:bla:jfnres:v:29:y:2006:i:1:p:43-62
    DOI: 10.1111/j.1475-6803.2006.00165.x
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    1. Kam C. Chan & Louis T. W. Cheng & Peter P. Lung, 2004. "Net buying pressure, volatility smile, and abnormal profit of Hang Seng Index options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 24(12), pages 1165-1194, December.
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    Cited by:

    1. Stoyu I. Ivanov & Jeff Whitworth & Yi Zhang, 2011. "The Implied Volatility Of Etf And Index Options," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 5(4), pages 35-44.
    2. Kam C. Chan & Carl R. Chen & Peter P. Lung, 2010. "Business Cycles and Net Buying Pressure in the S&P 500 Futures Options," European Financial Management, European Financial Management Association, vol. 16(4), pages 624-657, September.

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