Abstract
We investigate how price discovery occurs in the options markets through traders' trade size choice. By employing transactions data on all options traded on a sample of 100 firms, we show that informed traders fragment their orders into small (medium) trades for low (high) volume contracts. We also find that almost 60% of the price discovery occurs in the exchange with the largest market share for a given option, where informed traders favor medium size trades. Upon examining distinct option series for a given stock, we find that at-the-money calls display the highest information share. COPYRIGHT 2007, SCHOOL OF BUSINESS ADMINISTRATION.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 167-188 |
| Number of pages | 22 |
| Journal | Journal of Financial and Quantitative Analysis |
| Volume | 42 |
| Issue number | 1 |
| DOIs | |
| State | Published - Mar 2007 |
| Externally published | Yes |
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics