Cross-section of index option rates of return and elasticity dynamics on the EU and US markets

This study explores the dynamics of option trading on the EURO STOXX 50 and NASDAQ 100 indices, focusing on the distinct market behaviors, trading activities, and elasticity characteristics in the EU and US option markets. Utilizing a mixed effects panel regression model combined with the GJR-GARCH framework, we examine the influence of various factors on option pricing and investor strategies. Our findings reveal that the EU market exhibits a more conservative trading approach, with a balanced distribution of call options and a concentration of deep out-of-the-money put options. In contrast, the US market favors more speculative strategies, particularly around at-the-money options. The analysis indicates that US options demonstrate higher elasticity, reflecting a greater sensitivity to changes in the underlying assets, while the EU market shows higher trading activity and open interest. Additionally, we identify significant differences in leverage and open interest coefficients between the two markets, suggesting distinct trading behaviors and underlying market structures. This research enhances the understanding of option market dynamics, shedding light on the varying risk profiles and strategic preferences of investors in the EU and US markets.