Title

Stock Market Quality In The Presence Of A Traded Option

Abstract

We use an economic experiment to examine the implications of asymmetric information for linkages between a stock and a traded option. We find the presence of the option splits price discovery across markets and changes the process by which conditional expectations are updated. The time series properties of the stock price depend directly on the intrinsic value of the option: when the intrinsic value of the option is positive, informational efficiency is higher in the market for the stock and volatility is lower. We provide evidence that the introduction of an option improves market quality in the underlying asset. © 2006 by The University of Chicago. All rights reserved.

Publication Date

7-1-2006

Publication Title

Journal of Business

Volume

79

Issue

4

Number of Pages

2243-2274

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1086/503662

Socpus ID

33748572622 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/33748572622

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