||Essays on the Innovation, Trading Mechanism and Implied Volatility of Derivative Markets
||Department of Banking and Finance
Expiration day effects
第一個子題是以事件研究法，利用1997第3季至2004年底期間券商以29支電子個股為標的所發行之318支權證交易資料，分析認購權證之發行宣告效果。實證結果發現：(1) 權證發行多數集中於市場行情處於相對高檔時，且標的股票屬高估成長股居多，充分展現投資銀行之擇時與擇股發行能力；(2) 權證發行宣告日標的股出現正的異常報酬，且累積異常報酬達到最高，其後則反轉下降。對於連續被選為權證標的股票之熱門個股而言，因避險需求所引發之股價推升效果更是顯著；(3) 權證發行宣告對標的股票之交易量與流動性雖影響不大，然而，波動性已明顯降低。目前高槓桿特性之衍生性權證已成為新興市場小額投資人之重要投資工具，上開研究發現，有助於權證投資者對權證發行宣告日前後標的股票之價量表現，能有更深一層認識，實具重大意義。
指期到期日對台股現貨市場之影響。實證結果發現：(1) 到期日效應主要來自摩台指期到期日而非台指期到期日；(2) 摩台指期到期日，台股現貨市場有顯著價
收盤制度 (由連續競價制改為最後5分鐘集合競價制) 後，非但未見降低，反而
第三個子題則是以台股指數日內五分鐘報酬平方和計算真實波動性，分別以單變量與包含迴歸，分析比較2001年至2005年期間各波動性模型在5、10、15與20天等四個台指選擇權到期循環中之預測績效，特別強調無模型設定隱含波動性(model-free implied volatility, MF-IV) 模型與Black-Scholes隱含波動性 (BS-IV) 模型預測能力與隱含資訊之比較。實證結果發現，整體而言，考慮所有履約價格而非單一特定價格之MF-IV模型似乎優於BS-IV模型。值得一提的是，MF-IV完全包含歷史波動性模型與GARCH (1,1) 模型在預測未來5天買權到期時現貨市場真實波動性所具有之資訊。由於新興市場如台灣股票市場可能因漲跌停、放空限制、交易成本與追蹤誤差等市場障礙因素，促使BS-IV模型之適用性備受質疑，本實證結果，有助於台股市場投資人能以更有效率之隱含波動資訊，制定其投資策略。
||Over the past decade, investors have witnessed a rich variety of securities innovations in Taiwan, including the introduction of derivative warrants, futures and options. The innovations provide alternative instruments for hedging, arbitraging, and speculating. Regulators and academicians concern the trading mechanism of derivatives markets which may impact upon the underlying markets. In addition, market investors concern the implied volatility information from the options market which is important for evaluating investment decision and risk management. This dissertation focuses on three issues concerning the introduction effects of Taiwan derivative call warrants, the expiration day effects of Taiwan index futures, and the comparison of the relative forecasting performance of the implied volatility models in Taiwan.
The first essay employs an event-study methodology to examine whether the introduction of derivative warrants has any impact on the underlying stocks. Using the trading data of 318 Taiwan derivative call warrants issued on the 29 underlying stocks belonging to electronic sector from the third quarter of 1997 to the end of 2004, we have following results: (i) The warrant issuers show a good sense of timing and selecting in the issuing of warrants by writing warrants at market relative high and by selecting overvalued stocks as the issuing targets. (ii) There are positive abnormal returns and the CAR appears to peak at the announcement day, but returns decline thereafter. The effects of hedging demand on the underlying asset prices are more significant when there are several consecutive warrant issuances on a single underlying stock. (iii) Trading volume and liquidity are less affected, however, the volatility of the underlying asset decreases after the introduction of warrants.
As leveraged derivative warrants become important trading alternatives to small investors in emerging markets, the findings of this essay could help warrant investors to gain a better understanding of underlying stock prices and volume behavior surrounding the event days related to the issuing of derivative warrants.
In the second essay, we examine the impacts of the expiration day effects of the Taiwan Futures Exchange (TAIFEX) traded Taiwan Stock Exchange Capitalization Weighted Stock Index futures (TX) and the Singapore Exchange (SGX) traded Morgan Stanley Capital International Taiwan Stock Index (MSCI-TW) futures on the Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) and Taiwan Semiconductor Manufacturing Company (TSMC), with concerns of the effect of different settlement procedures. The entire sample period, from September 1998 to December 2004, is divided into two sub-samples according to the settlement procedures.
The main findings are as follows: (i) Expiration day effects mainly stem from the expiration of the MSCI-TW futures rather than the TX. (ii) There are significant price reversal, volatility and abnormal volume on the expiration of the MSCI-TW futures, with the expiration day effects becoming much more significant following the adoption of the 5-minute closing call procedure by the Taiwan Stock Exchange Corporation (TSEC). Evidence suggests that any call auction design which fails to consider order imbalances will have a direct impact on the efficiency of call auction prices; accordingly, more significant expiration day effects exist. (iii) Using an average price settlement based on a longer period would mitigate expiration day effects much better than a closing price settlement. Given the different settlement methods between the TAIFEX and SGX, the analysis of the expiration day effects for both markets should be particularly informative in terms of guiding the mechanism design for the emerging derivatives markets.
In the third essay, we use sum of square 5-minute return of the TAIEX to calculate the realized volatility (RV), and conduct univariate and encompassing regressions to compare the relative performance perform of various volatility models based on 5-, 10-, 15- and 20-day forecast horizons over the life of the TAIEX options (TXO) during the period from 2001 to 2005, emphasizing in comparing the relative forecast ability and implied information content between the model-free implied volatility (MF-IV) and the Black-Scholes implied volatility (BS-IV). Evidences show that the MF-IV, which considers all strike prices instead of a single price, outperforms the BS-IV. It is worth noting that the MF-IV is informational efficiency and subsumes all information contained in the historical volatility (HV) and GARCH (1,1) in forecasting future RV on weekly horizon over the life of the TXO contract. For emerging derivative market such as Taiwan equity market, the effects of market friction may cause the BS-IV model to be mis-pecified. The findings of this essay provide investors with alternative IV measure for making their investment strategy in Taiwan options market.
||TABLE OF CONTENTS
LIST OF TABLES ix
LIST OF FIGURES x
Chapter 1 Introduction of Dissertation 1
Chapter 2 Market Impacts of Derivative Warrants in Taiwan: Do They Differ from Those of Standard Options? 4
2.1. Introduction 4
2.2. The Different Impacts of Warrants and Options 6
2.3. Institutional Setting and Data 9
2.4. Methodology and Empirical Results 14
2.4.1. Volatility Effect 14
2.4.2. Hedging Effect 16
2.4.3. Price Manipulation Effect 18
2.4.4. Issuers’ Ability of Selecting 22
2.4.5. Trading Volume and Liquidity 25
2.5. Conclusions 27
Chapter 3 Expiration Day Effects of Taiwan Index Futures: The Case of the
Singapore and Taiwan Futures Exchanges 29
3.1. Introduction 29
3.2. Related Issues on Expiration Day Effects 31
3.3. Institutional Setting and Data 34
3.4. Methodology and Empirical Results 37
3.4.1. Abnormal Returns 37
3.4.2. Return Volatility 41
3.4.3. Price Reversals 44
3.4.4. Volume Effects 47
3.5. Conclusions 51
Chapter 4 The Forecasting Performance of Alternative Volatility Models in Taiwan 52
4.1. Introduction 52
4.2. Related Literatures and Institutional Setting 54
4.3. Methodology 57
4.3.1. Historical Volatility 58
4.3.2. GARCH(1,1) 59
4.3.3. Black-Scholes Implied Volatility 60
4.3.4. Model-Free Implied Volatility 61
4.3.5. Volatility Forecast Evaluation Criteria 63
4.4. Data and Empirical Results 64
4.4.1. Summary Statistics Analysis 65
4.4.2. Forecast Error Analysis 67
4.4.3. Univariate Regression Analysis 68
4.4.4. Encompassing Regression Analysis 69
4.5. Conclusions 73
Chapter 5 Conclusions of Dissertation 76
Appendix A 85
LIST OF TABLES
Table 2-1 TAIEX and warrants issued from Q3 of 1997 to Q4 of 2004 12
Table 2-2 Wilcoxon rank-sum tests of adjusted volatility ratio 15
Table 2-3 CAR of underlying stocks before and after warrant introduction 18
Table 2-4 Regression results of intra-day return of the underlying stocks during the primary market period 21
Table 2-5 Regression results of intra-day volatility of the underlying stocks during the primary market period 22
Table 2-6 Regression results of the overreaction hypothesis 24
Table 2-7 Wilcoxon rank-sum tests of market-adjusted trading value, volume and liquidity 26
Table 3-1 Pooled and matched-pair t-test for the price effect 40
Table 3-2 Pooled F-tests for the return volatility effect 43
Table 3-3 Mean price reversal effect 47
Table 3-4 Pooled and matched-pair t-test for the volume effect 50
Table 4-1 Market volume and daily mean volume of the TXO 56
Table 4-2 Summary statistics of various volatility measures 66
Table 4-3 Forecast errors of various forecast methods 67
Table 4-4 Results of univariate regression 69
Table 4-5 Results of encompassing regression of informational efficiency for the BS-IV 70
Table 4-6 Results of encompassing regression of informational efficiency for the MF-IV 72
LIST OF FIGURES
Figure 2-1 Hedging effect and primary market effect 10
Figure 2-2 TAIEX and warrants issued from Q3 of 1997 to Q4 of 2001 13
Figure 2-3 TAIEX and warrants issued from 2001 to 2004 13
Figure 4-1 Four major forecast horizons 58
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