The Information Content Of SSE 50ETF Option Implied For Stock Return Volatility Forecasting

The volatility of financial assets reflects the uncertainty of changes in asset prices.The modeling and forecasting of financial assets has always been an important part of economics research.The option's price is an investor's expectation of the future market trend based on current information,and foreign scholars have proved that the implicit volatility and risk neutrality skewness extracted from the option price have more volatility forecast information.However,due to the late listing of Chinese options,there is no scholar who has tested the predictability of implicit information in Chinese options.Moreover,because of the serious heterogeneity of Chinese stock market,the existence of this heterogeneity will first be reflected in investor sentiment,and ultimately be reflected in investors' trading behavior.Therefore,based on investor sentiment theory to explore the prediction effect of option implicit information,it has a certain theoretical significance.First,this paper sorts out the current situation of stock market volatility in China and the development status of the SSE 50ETF options.It also discusses heterogeneous markets,investor sentiment theory and methods for extracting the implied information from option price,and put forward five hypotheses of prediction results,and use empirical analysis to test these five hypotheses.Then,we use the heterogeneous autoregressive model(HAR-RV)and its extension models for HAR-RV and HAR-RV(S),HAR-RV-IV and HAR-RV-IV(S),HAR-RV-IV-SK and HAR-RV-IV-SK(S),compare and analyze whether the model with sentiment variables has better prediction accuracy than the model without emotional variables.According to the empirical results of this paper,the following conclusions are drawn:First,the in-sample regression results show that the option implied information contains incremental information for predicting volatility.Second,Out-of-sample forecasting tests show that the development of the option market in China is limited,and the implied information of options has a poor predictive effect on future volatility.Third,although the implied information of out-of-sample option is limited,the HAR-RV(S)model with investor sentiment is still the best one among the six models.This also shows from the side that in Chinese stock market investor sentiment is a systematic factors of stock returns.This paper can provide a theoretical basis for the information disclosure,policy makers and stock market managers,so that financial regulators and investors can clearly recognize the impact of sentiment changes and option prices changes on the volatility of the stock market,and we can have a clearer understanding of volatility in the market turbulence,effectively reduce the risk brought by the irrational factors to the stock market and the financial system,and maintaining the stability of the financial market.Using the price data of the Chinese option market,the main contribution of this paper is to use the CBOE's method of compiling implied volatility and risk-neutral skewness to demonstrate the prediction ability of these two indicators from the different characteristics of investor sentiment.The results show that China's option development is limited,and the forecasting power of implicit information on options is much less than that of developed countries.The inadequacy of this article is that due to the late development of China's option market,the available regression data is insufficient,and some follow-up studies still need to be further improved.