Trading breaks and asymmetric information: The option markets

Guy Kaplanski, Haim Levy

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

We find that weekend, holiday and overnight trading breaks generate excessive perceived risk in the option markets, presumably due to asymmetric information, which, in turn, encourages uninformed option traders to postpone trading. This perceived risk subsides after two days accompanied by an increase in the option trading volume and the underlying index's actual price volatility. These results shed light on the informational role of index options and suggest that the theoretical models' results regarding information processing and price discovery in the presence of private information are not limited to single stocks but also apply to the market as a whole.

Original languageEnglish
Pages (from-to)390-404
Number of pages15
JournalJournal of Banking and Finance
Volume58
DOIs
StatePublished - 1 Sep 2015

Bibliographical note

Publisher Copyright:
© 2015 Elsevier B.V.

Keywords

  • Asymmetrical information
  • D0
  • D8
  • G12
  • G14
  • Implied volatility
  • Market efficiency
  • Option market microstructure
  • Perceived risk
  • Volume of trade

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