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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Market and Volatility Timing Using Gamma |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 72 |
| Date | 2021 |
| Abstract Text | Delta-hedging by option market makers affects the prices of the under-lying. When market makers are short gamma, their hedging creates price momentum. Conversely, when they are long, it subdues price movements. This paper empirically documents that estimated net gamma exposure of op-tion market makers is a significant predictor of future absolute returns. The results are robust for a range of relevant control variables. Further, the effects are stronger during times of low liquidity and are related to return rever-sals. Trading strategies that use market maker gamma as a timing signal for volatility and return reversals see improved performance before transaction costs are considered. |
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