Implied Volatility Asymmetries in Kospi 200 Option Markets

Abstract

This paper examines implied volatility asymmetries in KOSPI200 option markets. The empirical results show that the unexpected negative return has a more remarkable effect on implied volatility than the unexpected positive one in the early stages of markets. In the recent stages, markets do not show implied volatility asymmetries. These results give and interesting implication to option market participants. In addition, this paper examines whether trading activity in option markets has an effect on implied volatility. The paper finds that in the second stages of markets trading activity has a negative effect on implied volatility while trading activity do not have effect on implied volatility in the early stages of markets. When trading activity is partitioned into expected and unexpected components, the empirical result shows that all trading activities have a significant negative effect on the implied volatility of option markets.