Motivated by the growing literature on options as non-redundant assets, we investigate how option trading impacts underlying stock prices controlling for stock market activities in the cross section in this paper. We find both option trades and quotes are able to predict future stock price movement but stock orders submitted by stock market investors do not have predictive ability. The predictive relations do not reverse at longer horizons, suggesting that the price impact of option trading is due to information asymmetry in the marketplace rather than transitory price pressure as a result of option market makers’ delta hedging activity in the stock market. This informational benefit from option trading increases in concentration of informed traders, difficulty of short selling, and options market activeness. The trading strategy based on option trading signals yields significant returns that cannot be explained by common risk factors.
JEL Classification: G14, G12, G13.
Keywords: Options; order flow; information asymmetry; delta; price discovery.
학회소식
공지사항
[2011년 제 4차] Does Option Trading Convey Stock Price Information?
작성자 : 관리자
조회수 : 974
게시일 :
2011-12-07