The Role Of Option In Stock Return And Listed Volatility Forecasting

Judging the movement of stock market has long been the focus of investors and researchers.This paper tries to reveal the rules which the movement of Chinese stock market follows from the perspective of return and volatility.Since China joined the World Trade Organization,it's interaction with international financial market has been closer and closer and the exchange of information has been more and more frequent.Thus,it is difficult to describe and predict the return and volatility of Chinese stock market only according to the information from our own stock market.Meanwhile,as a hub between Chinese mainland stock market and international stock market,Hong Kong has an especially close relationship with Chinese mainland stock market.This paper focuses on A+H cross-listed stocks which have H-share stock options and studies whether H-share stock options can be predicted for A-share stocks,aiming to increase the forecast effects of the original volatility model and to provide reference for investors.This paper chooses 18 A+H cross-listed stocks with H-share stock options.The prediction models of A-share stocks are established from the return and volatility.The implied volatility of the option market is added to the forecasting model to exam the information from the option market.This paper also studies the impact of the opening of Shanghai-Hong Kong Stock Connect on the information transactions of the A-share and H-share markets by constructing dummy variables.Finally,the mean square error(MSE)and squared absolute error(MAE)in the loss function are used to measure the prediction effect of the out-of-sample return.The Mincer-Zarnowitz equation is used to test the effect of the out-of-sample volatility prediction.The empirical results show that whether it is the prediction of the rate of return or the prediction of the volatility,whether it is the intra-sample prediction or the out-of-sample prediction,the forecast models by adding the implied volatility of the option market is better than the model which based on historical information and H-share information.The put option and the call option is different from the information contained in the return and volatility forecast,indicating that the implied volatility information has an asymmetric effect.After the opening of the Shanghai-Hong Kong Stock Connect,the model has a higher degree of fitting,indicating that the opening of the Shanghai-Hong Kong Stock Connect can enhance the information transmission between the two places.H-shares and the implied volatility of the options market can increase the forecast effects.