Price discovery in stock and options markets

Patel, V; Putnins, T; Michayluk, D; Foley, S

Price discovery in stock and options markets

Patel, V

Putnins, T

Michayluk, D

Foley, S

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Publisher:: Elsevier
Publication Type:: Journal Article
Citation:: Journal of Financial Markets, 2020, 47, pp. 1-28
Issue Date:: 2020

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Field	Value	Language
dc.contributor.author	Patel, V https://orcid.org/0000-0002-1696-3325
dc.contributor.author	Putnins, T https://orcid.org/0000-0001-5731-499X
dc.contributor.author	Michayluk, D https://orcid.org/0000-0001-9020-0855
dc.contributor.author	Foley, S
dc.date.accessioned	2020-10-04T23:52:42Z
dc.date.available	2020-10-04T23:52:42Z
dc.date.issued	2020
dc.identifier.citation	Journal of Financial Markets, 2020, 47, pp. 1-28
dc.identifier.issn	1386-4181
dc.identifier.uri	http://hdl.handle.net/10453/143075
dc.description.abstract	Using new empirical measures of information leadership, we find that the role of options in price discovery is up to five times larger than previously thought. Approximately one-quarter of new information is reflected in options prices before being transmitted to stock prices, with options playing a more important role in price discovery around information events. Using unique data on traders prosecuted for insider trading, we find that they often choose to trade in options, attracted by their leverage, and when they do the options share of price discovery is higher. Our results help interpret conflicting findings in the existing literature.
dc.language	en
dc.publisher	Elsevier
dc.relation.ispartof	Journal of Financial Markets
dc.relation.isbasedon	10.1016/j.finmar.2019.100524
dc.rights	info:eu-repo/semantics/closedAccess
dc.subject	1502 Banking, Finance and Investment
dc.subject.classification	Finance
dc.title	Price discovery in stock and options markets
dc.type	Journal Article
utslib.citation.volume	47
utslib.for	1502 Banking, Finance and Investment
utslib.for	1502 Banking, Finance and Investment
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney
utslib.copyright.status	closed_access	*
pubs.consider-herdc	true
dc.date.updated	2020-10-04T23:52:36Z
pubs.publication-status	Published
pubs.volume	47

Abstract:

Using new empirical measures of information leadership, we find that the role of options in price discovery is up to five times larger than previously thought. Approximately one-quarter of new information is reflected in options prices before being transmitted to stock prices, with options playing a more important role in price discovery around information events. Using unique data on traders prosecuted for insider trading, we find that they often choose to trade in options, attracted by their leverage, and when they do the options share of price discovery is higher. Our results help interpret conflicting findings in the existing literature.

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http://hdl.handle.net/10453/143075