Journal of Economics and Financial Analysis, 9 (1), pp. 1-22, [2025]
URI: https://ojs.tripaledu.com/jefa/article/view/102/108

Does Options Bolster Capital Markets in South Africa?


South African Institute of Financial Markets, South Africa


DOI: http://dx.doi.org/10.1991/jefa.v9i1.a74

Abstract

This study examines the impact of option on South African’s capital markets over the period 1991–2020. Using put–call open interest ratios (PCOIR) and put–call volume ratios (PCVR), we test whether option sentiment provides predictive signals beyond conventional macro-financial variables. Applying quantile regression with robustness checks for asymmetry, regime dependence, and macro-financial interactions, we find that option sentiment significantly predicts equity and bond returns, with bearish signals exerting stronger effects than bullish ones. The predictive influence intensifies during periods of heightened volatility and financial stress, and its strength varies with liquidity conditions and monetary policy stance.
Overall, the findings show that option sentiment is both a reflection of investor expectations and a driver of asset price dynamics, underscoring its informational role in South Africa’s capital markets.

Keywords

Options; Capital Markets; Quantile Regression; South Africa.

JEL Classification

C32, G12, G23.

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