Page 1 |
Save page Remove page | Previous | 1 of 114 | Next |
|
small (250x250 max)
medium (500x500 max)
Large (1000x1000 max)
Extra Large
large ( > 500x500)
Full Resolution
All (PDF)
|
This page
All
|
Three Essays in Derivatives,
Trading and Liquidity
Tong Wang
A Dissertation
Presented to the Faculty
of the University of Southern California
in Candidacy for the Degree
of Doctor of Philosophy
Adviser: Professor Christopher Jones
August 2013
Object Description
| Title | Three essays in derivatives, trading and liquidity |
| Author | Wang, Tong |
| Author email | wangtong@usc.edu;wangt657@gmail.com |
| Degree | Doctor of Philosophy |
| Document type | Dissertation |
| Degree program | Business Administration |
| School | Marshal School of Business |
| Date defended/completed | 2013-05-11 |
| Date submitted | 2013-08-07 |
| Date approved | 2013-08-07 |
| Restricted until | 2013-08-07 |
| Date published | 2013-08-07 |
| Advisor (committee chair) | Jones, Christopher S. |
| Advisor (committee member) |
Ogneva, Maria Stathopoulos, Andreas Solomon, David Zapatero, Fernando |
| Abstract | The work in Chapter 1 shows that hedging by option writers has a large and significant destabilizing effect on the stock market. We demonstrate that weekly return reversals are significantly stronger surrounding option expiration days. Our evidence suggests that the hedging pressure that drives weekly reversals mainly comes from index options rather than individual stock options. We find in addition that index option hedging appears to have an impact on the aggregate market, and that the strength this aggregate impact is highly related to the degree of cross-sectional reversal. We also find that index option prices tend to be high before option expiration, suggesting that option hedgers are attempting to unwind written positions that might be difficult to hedge due to price impact on the underlying stocks. Collectively, the evidence we present strongly supports the conclusion that option trading causes significant price displacements in stocks and in the market as a whole. ❧ Chapter 2 investigates the relationship between the slope of the implied volatility (IV) term structure and future option returns. A strategy that buys straddles with high IV slopes and short sells straddles with low IV slopes returns seven percent per month, with an annualized Sharpe ratio just less than two. Surprisingly, we find no relation between IV slopes and the returns on longer-term straddles, even though the correlation between the returns on portfolios of short-term and long-term straddles generally exceeds 0.9. Our evidence suggests that the return predictability we document is unrelated to systematic risk premia. We believe that our results point to two possible explanations. One is that temporary hedging pressure pushes option prices away from efficient levels. The other is that short-term options are more likely to be mispriced by noise traders than long-term options. ❧ Chapter 3 shows that the positive correlation between stock-level trading activity and market betas remains strong even using the Dimson (1979} method to correct for non-synchronous trading. This finding suggests that controlling for non-synchronous trading alone does not provide unbiased inferences regarding the effects of events on market betas. Instead, it is necessary to control for changes in trading activity explicitly. We show that controlling for trading activity significantly changes the estimated impact of seasoned equity offerings and share repurchases on market betas. |
| Keyword | liquidity; options; real options; seasoned equity offerings; term structure; trading |
| Language | English |
| Format (imt) | application/pdf |
| Part of collection | University of Southern California dissertations and theses |
| Publisher (of the original version) | University of Southern California |
| Place of publication (of the original version) | Los Angeles, California |
| Publisher (of the digital version) | University of Southern California. Libraries |
| Provenance | Electronically uploaded by the author |
| Type | texts |
| Legacy record ID | usctheses-m |
| Contributing entity | University of Southern California |
| Rights | Wang, Tong |
| Physical access | The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the author, as the original true and official version of the work, but does not grant the reader permission to use the work if the desired use is covered by copyright. It is the author, as rights holder, who must provide use permission if such use is covered by copyright. The original signature page accompanying the original submission of the work to the USC Libraries is retained by the USC Libraries and a copy of it may be obtained by authorized requesters contacting the repository e-mail address given. |
| Repository name | University of Southern California Digital Library |
| Repository address | USC Digital Library, University of Southern California, University Park Campus MC 7002, 106 University Village, Los Angeles, California 90089-7002, USA |
| Repository email | cisadmin@lib.usc.edu |
| Filename | etd-WangTong-1991.pdf |
| Archival file | uscthesesreloadpub_Volume7/etd-WangTong-1991.pdf |
Description
| Title | Page 1 |
| Contributing entity | University of Southern California |
| Repository email | cisadmin@lib.usc.edu |
| Full text | Three Essays in Derivatives, Trading and Liquidity Tong Wang A Dissertation Presented to the Faculty of the University of Southern California in Candidacy for the Degree of Doctor of Philosophy Adviser: Professor Christopher Jones August 2013 |
