The impact of trader behavior on option volatility

This is a 2014 study conducted by the Chienhsin University. They conducted an empirical study on the impact of trader types (retail investors, institutional investors, market makers) on the option volatility pricing on the index option (TXO) traded on TAIFEX. Some of the findings are pretty obvious (institutional investors make better decisions than retail investors), but it is an interesting study to determine if an adjustment in volatlilty pricing is warranted depending on the nature of trading activity. The study also explores the (possible) added value of market makers in an index product.

Click here for the study.