Di Mo, Neda Todorova and Rakesh Gupta
The purpose of this paper is to investigate the relationship between option’s implied volatility smirk (IVS) and excess returns in the Germany’s leading stock index…
Abstract
Purpose
The purpose of this paper is to investigate the relationship between option’s implied volatility smirk (IVS) and excess returns in the Germany’s leading stock index Deutscher-Aktien Index (DAX) 30.
Design/methodology/approach
The study defines the IVS as the difference in implied volatility derived from out-of-the-money put options and at-the-money call options. This study employs the ordinary least square regression with Newey-West correction to analyse the relationship between IVS and excess DAX 30 index returns in Germany.
Findings
The authors find that the German market adjusts information in an efficient way. Consequently, there is no information linkage between option volatility smirk and market index returns over the nine years sample period after considering the control variables, global financial crisis dummies, and the subsample test.
Research limitations/implications
This study finds that the option market and the DAX 30 index are informationally efficient. Implications of the findings are that the investors cannot profit from the information contained in the IVS since the information is simultaneously incorporated into option prices and the stock index prices. The findings of this study are applicable to other markets with European options and for market participants who seek to exploit short-term market divergence from efficiency.
Originality/value
The relationship between IVS and stock price changes has not been investigated sufficiently in academic literature. This study looks at this relationship in the context of European options using high-frequency transactions data. Prior studies look at this relationship for only American options using daily data. Pricing efficiency of the European option market using high-frequency data have not been studied in the prior literature. The authors find different results for the German market based on this high-frequency data set.
Details
Keywords
Abid Suhail Nika, Ramjit Singh and Neda Ul Bashir
This research aims to investigate how absorptive capacity impacts artisan businesses' innovation performance in Jammu and Kashmir, India. Additionally, the study examines the role…
Abstract
Purpose
This research aims to investigate how absorptive capacity impacts artisan businesses' innovation performance in Jammu and Kashmir, India. Additionally, the study examines the role of strategic orientation (customer and technological orientation) as a mediator.
Design/methodology/approach
The study analysed data from 408 artisan entrepreneurs using partial least squares structural equation modelling. The research model was built on the “Dynamic-Capability Theory” of absorptive capacity and the “Resource-Based Theory” of performance.
Findings
The study’s findings suggest that both realised and potential absorptive capacity positively and significantly impact innovation performance. Moreover, customer and technology orientations positively and strongly influence innovation performance. Additionally, potential and realised absorptive capacity has a favourable impact on customer and technology orientation. The mediation analysis results indicate that customer and technological orientation have complementary partial mediation between potential absorptive capacity and innovation performance. Finally, mediating variables like customer and technological orientation show complementary partial mediation for realised absorptive capacity.
Originality/value
The research model would enrich the existing literature and offer an improved understanding of how absorptive capacity enhances the innovation performance among artisan entrepreneurs and concurrently validates the theory of “Dynamic-Capability Theory” of absorptive capacity and the “Resource Based Theory” of innovation performance of a firm.