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Impact Of Hedging Pressure On Implied Volatility In Financial Times And London Stock Exchange (Ftse) Market

Author

Listed:
  • Li Guozhou
  • Christopher Gan
  • Sirimon Treepongkaruna

Abstract

This paper examines the impact of net buying pressure and the event of 9/11 on the implied volatility of the U.K. FTSE 100 (Financial Times and the London Stock Exchange) index options. Our findings indicate that when effects such as financial leverage, information flow and mean reversion are held constant, the net buying pressure of the out-of-the-money put options plays a dominant role in determining the shape of the implied volatility function. Further, the event of 9/11 has a transitory influence on the implied volatility change. Our results also support the notion that hedging pressure can help explain the difference between implied volatility and realized volatility.

Suggested Citation

  • Li Guozhou & Christopher Gan & Sirimon Treepongkaruna, 2009. "Impact Of Hedging Pressure On Implied Volatility In Financial Times And London Stock Exchange (Ftse) Market," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 3(1), pages 103-118.
    • Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:1:p:103-118
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    Citations

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    Cited by:

    1. Caterina Gennaioli & Gaia Narciso, 2017. "Toxic roads: Unearthing hazardous waste dumping," Trinity Economics Papers tep1817, Trinity College Dublin, Department of Economics.
    2. Kevin J. Murphy, 2013. "Regulating Banking Bonuses in the European Union: a Case Study in Unintended Consequences," European Financial Management, European Financial Management Association, vol. 19(4), pages 631-657, September.
    3. Elena Kulchina, 2017. "Do foreign entrepreneurs benefit their firms as managers?," Strategic Management Journal, Wiley Blackwell, vol. 38(8), pages 1588-1607, August.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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