Observations of Market Expectation Behaviour in the Taiwan Stock Market

DOI

10.2991/jcis.2006.184How to use a DOI?

Keywords

forecasting, market expectation, implied volatility, futures, probability space.

Abstract

This study adopts derivative pricing as an indicator of market expectations, with those results suggesting that general investors can use market expectations to predict the final settlement value of underlying assets. Most investment textbooks note that one of the major functions of futures is price discovery. Similarly, the implied volatility associated with option prices can be used to discover the volatility of the underlying asset. This study combines futures price and implied volatility to establish a probability space of market expectations regarding the final settlement value of the underlying asset, and verifies this probability space using empirical data from the Taiwan stock market. The verification results suggest that market expectations closely reflect the actual behavior of the final settlement value of the underlying asset, and thus provide a practical perspective on future price behavior. According to this study, investors can easily estimate underlying asset behavior based on the behavior of the related futures and options and without incurring significant measurement error, which can be helpful in risk management and planning investment strategies.

Copyright

© 2006, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Chiu Hsiao-Ya
AU  - Chen An-Pen
AU  - Sheng Chieh-Chung
AU  - Huang Yun-Hsuan Huang
PY  - 2006/10
DA  - 2006/10
TI  - Observations of Market Expectation Behaviour in the Taiwan Stock Market
BT  - Proceedings of the 9th Joint International Conference on Information Sciences (JCIS-06)
PB  - Atlantis Press
SP  - 557
EP  - 560
SN  - 1951-6851
UR  - https://doi.org/10.2991/jcis.2006.184
DO  - 10.2991/jcis.2006.184
ID  - Hsiao-Ya2006/10
ER  -