Option volume and stock prices: evidence on where informed traders trade
Article Abstract:
This paper investigates the informational role of transactions volume in options markets. We develop an asymmetric information model in which informed traders may trade in option or equity markets. We show conditions under which informed traders trade options, and we investigate the implications of this for the linkage between markets. Our model predicts an important informational role for the volume of particular types of option trades. We empirically test our model's hypotheses with intraday option data. Our main empirical result is that negative and positive option volumes contain information about future stock prices. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1998
User Contributions:
Comment about this article or add new information about this topic:
Time and the process of security price adjustment
Article Abstract:
This paper delineates the link between the existence of information, the timing of trades, and the stochastic process of prices. We show that time affects prices, with the time between trades affecting spreads. Because the absence of trades is correlated with volume, our model predicts a testable relation between spreads and normal and unexpected volume, and demonstrates how volume affects the speed of price adjustment. Our model also demonstrates how the transaction price series will be a biased representation of the truer price process, with the variance being both overstated and heteroskedastic. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1992
User Contributions:
Comment about this article or add new information about this topic:
- Abstracts: Order form and information in securities markets. Changes in interstate banking laws: the impact on shareholder wealth
- Abstracts: Gerald Smith, Chairman and Chief Executive, Cramphorn PLC: the secrets of perennial growth. Jeffery Bowman: the problems of success
- Abstracts: Advance corporation tax: strangling the multinationals. Time to abolish the big company audit? World class financial controls
- Abstracts: Corporate estimated taxes: payments need not be 90 percent of liability to escape penalty. When underpayments will be subject to higher interest
- Abstracts: Do changes in dividends signal the future or the past? Price reactions to dividend initiations and omissions: overreaction or drift?