Information shares of two parallel currency options markets: Trading costs versus transparency/tradability

Louis R. Piccotti; Ben Z. Schreiber

doi:10.1016/j.jempfin.2015.03.016

Information shares of two parallel currency options markets: Trading costs versus transparency/tradability

Louis R. Piccotti, Ben Z. Schreiber

Research output: Contribution to journal › Article › peer-review

7 Scopus citations

Abstract

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.

Original language	English
Pages (from-to)	210-229
Number of pages	20
Journal	Journal of Empirical Finance
Volume	32
DOIs	https://doi.org/10.1016/j.jempfin.2015.03.016
State	Published - 31 Oct 2014

Bibliographical note

Publisher Copyright:
© 2015 Elsevier B.V.

Keywords

FX options
Foreign exchange market microstructure
Information share
Price discovery

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10.1016/j.jempfin.2015.03.016

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title = "Information shares of two parallel currency options markets: Trading costs versus transparency/tradability",

abstract = "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.",

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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.

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Information shares of two parallel currency options markets: Trading costs versus transparency/tradability

Abstract

Bibliographical note

Keywords

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