TY - JOUR
T1 - Information shares of two parallel currency options markets
T2 - Trading costs versus transparency/tradability
AU - Piccotti, Louis R.
AU - Schreiber, Ben Z.
N1 - Publisher Copyright:
© 2015 Elsevier B.V.
PY - 2014/10/31
Y1 - 2014/10/31
N2 - This paper studies whether trading costs or transparency/tradability are more important to price discovery using a unique dataset of currency options that trade simultaneously in two parallel markets. The Over-The-Counter (OTC) market is characterized by sophisticated investors, low trading costs, and low transparency/tradability compared to the Tel-Aviv Stock Exchange (TASE). Pricing errors are much larger on the TASE and the information share of the OTC market is significantly larger than that of the TASE by various information share measures, showing that trading costs and trader type have a first-order effect on price discovery while transparency/tradability have a second-order effect.
AB - This paper studies whether trading costs or transparency/tradability are more important to price discovery using a unique dataset of currency options that trade simultaneously in two parallel markets. The Over-The-Counter (OTC) market is characterized by sophisticated investors, low trading costs, and low transparency/tradability compared to the Tel-Aviv Stock Exchange (TASE). Pricing errors are much larger on the TASE and the information share of the OTC market is significantly larger than that of the TASE by various information share measures, showing that trading costs and trader type have a first-order effect on price discovery while transparency/tradability have a second-order effect.
KW - FX options
KW - Foreign exchange market microstructure
KW - Information share
KW - Price discovery
UR - http://www.scopus.com/inward/record.url?scp=84952631853&partnerID=8YFLogxK
U2 - 10.1016/j.jempfin.2015.03.016
DO - 10.1016/j.jempfin.2015.03.016
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SN - 0927-5398
VL - 32
SP - 210
EP - 229
JO - Journal of Empirical Finance
JF - Journal of Empirical Finance
ER -