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1 – 10 of 25In this study, the author aims to examine the behavior of QQQ options at the time of the QQQ move from AMEX to NASDAQ on December 1, 2004. The author addresses the questions: is…
Abstract
Purpose
In this study, the author aims to examine the behavior of QQQ options at the time of the QQQ move from AMEX to NASDAQ on December 1, 2004. The author addresses the questions: is there a relation between hedging and speculation, if such a relation exists considering the improvement in market trading efficiency after the QQQ move did the relation between speculative demand for options and hedging demand for options strengthen at the time of the QQQ move, if such a relation exists does hedging activity follow speculative activity.
Design/methodology/approach
The author uses the fact that deep-out-of-the-money puts are used for hedging, whereas deep-out-of-the-money calls are used for speculation. The author uses spectral analysis on QQQ options in the attempt to answer the research question. The author uses spectral analysis because the data in the study are non-normally distributed which would make parametric testing meaningless.
Findings
The author finds that indeed the relation between speculative demand and hedging demand for options exists and strengthens after the consolidation of trading on NASDAQ and that hedging follows speculation. The fact that this relation exists is economically meaningful in that this is established for the first time empirically in support of the theoretical models predicting this relation's existence.
Originality/value
Market participants on both the speculation side of the investment spectrum, such as hedge funds, and hedging side of the investment spectrum, such as mutual funds and money managers, would be interested in this topic and the findings of this paper. The main contribution of this study is in examining the relation between differential demand for options by using the non-parametric tools of spectral analysis. This helps extend the understanding of exchange traded funds' (ETF') option behavior and contributes to this strand of the ETF literature.
Details
Keywords
This paper aims to provide the necessity to activate long-term exchange-traded derivatives (ETD) in Korea. In the era of aging, low interest rates and low economic growth, the…
Abstract
Purpose
This paper aims to provide the necessity to activate long-term exchange-traded derivatives (ETD) in Korea. In the era of aging, low interest rates and low economic growth, the investment demand for long-term financial products, and its hedging demand have steadily increased. Unfortunately, long-term ETD do not trade in Korea, and this study presents political suggestions to invigorate long-term ETD based on overseas cases and empirical analysis. Specifically, this study suggests the necessity to activate exchange traded funds (ETFs) options, long-term Korea treasury bond futures and options and long-term Volatility Index of Korea Composite Stock Price Index future and options. The introduction of those long-term ETD not only contributes to providing long-term investment and hedging vehicles but also reduces market inefficiencies in the Korean industry of ETFs, bonds and structured products.
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The purpose of this study is to extend the work of DeFusco, Ivanov and Karels by examining pricing deviation of DIA, SPY and QQQQ on intradaily basis.
Abstract
Purpose
The purpose of this study is to extend the work of DeFusco, Ivanov and Karels by examining pricing deviation of DIA, SPY and QQQQ on intradaily basis.
Design/methodology/approach
The DIA is designed to be one hundredth of the DJIA, the SPY is designed to be one tenth of the S&P 500 and QQQQ is designed to be one fortieth of the NASDAQ 100. This feature of ETFs requires the estimation of the difference between the proportional level of the index and the price of the ETF, which is the ETF pricing deviation.
Findings
The paper finds that the DIA, SPY and QQQQ pricing deviations are 0.0429, −0.0743 and 0.4298, respectively. The findings indicate that the prices of DIA and QQQQ are on average lower than the underlying indexes. SPY is the exception having a price which is higher than the theoretical price of the S&P 500 index. The author finds that this is due to the increased demand for the SPY. Additionally, the paper provides an explanation for the large change (increase) in the pricing deviation of QQQQ after December 1, 2004 which DeFusco, Ivanov and Karels could not explain. On December 1, 2004 QQQQ trading was consolidated on NASDAQ. The paper finds negative growth in the volume of QQQQ after December 1, 2004 indicating decrease in popularity of this ETF. The decrease in popularity of QQQQ might explain the increase in its pricing deviation.
Research limitations/implications
The paper uses high frequency data in the analysis of pricing deviation which might be artificially deflating standard errors and thus inflating the t‐test significance values.
Originality/value
The paper contributes to the ongoing search in the finance literature of precision ETF performance metrics.
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Stock markets during the day are relatively centralized, while night markets, due to the dominance of electronic trading venues, are fragmented. Though electronic markets at night…
Abstract
Stock markets during the day are relatively centralized, while night markets, due to the dominance of electronic trading venues, are fragmented. Though electronic markets at night allow more competition for order flow, they may result in decreased order interaction and decreased transparency. Using transaction data for three exchange traded funds (ETFs), we find that bid–ask spreads are wider at night due to higher order processing costs, market maker rents, and inventory holding costs. Results show that night markets are informationally fragmented and are not able to impound information available in net order flow to the same degree as day markets.
Jing Chi and Martin Young
While China is currently moving toward the full development of its own financial derivatives markets, to date, China's experience with these has been a negative one. This paper…
Abstract
While China is currently moving toward the full development of its own financial derivatives markets, to date, China's experience with these has been a negative one. This paper examines the importance to China of developing a fully integrated financial derivatives market from both the economic and financial market perspectives. It examines the best way forward for derivative trading, both market based and over-the-counter, and the types of products best suited to both, given the current state of the Chinese financial markets. Consideration is given to market structure, regulation, trading and settlement systems and international cooperation.