Overreactions in the options markets in Japan

摘要

This study investigates the 'term structure' of implied volatilities of the NIKKEI 225 index options in order to examine the existence of investors' overreaction in the options markets in Japan. According to the rational expectations theory, the implied volatility on a longer maturity option should move by less than 1% in response to a 1% move in the implied volatility of a shorter maturity option. However, the empirical analyses show that this elasticity turns out to be larger than suggested by the theory. These results from Japanese markets, indicating that long-maturity options tend to 'overreact' to the new information in comparison with the short-maturity options, are similar to those found in the USA.