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Disagreement In Market Index Options, Guilherme Salome, George Tauchen, Jia Li
Disagreement In Market Index Options, Guilherme Salome, George Tauchen, Jia Li
Research Collection School Of Economics
We generate new evidence on disagreement among traders in the S&P 500 options market from high-frequency intraday price and volume data. Inference on disagreement is based on a model where investors observe public information but agree to disagree on its interpretation; disagreement among investors is captured by the volume–volatility elasticity. For options, there are two natural variables related to disagreement: moneyness and tenor, which we relate to disagreement about the distribution of the market index at different quantiles and times. The estimated volume–volatility elasticity equals unity for options near the money and close to expiration, which is consistent with the …