Price discovery in stock and options markets

Vinay Patel, Tālis J. Putniņš, David Michalyuk, Sean Foley

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

Using new empirical measures of information leadership, we find that the role of options in price discovery is up to five times larger than previously thought. Approximately one-quarter of new information is reflected in options prices before being transmitted to stock prices, with options playing a more important role in price discovery around information events. Using unique data on traders prosecuted for insider trading, we find that they often choose to trade in options, attracted by their leverage, and when they do the options share of price discovery is higher. Our results help interpret conflicting findings in the existing literature.
Original languageEnglish
Article number100524
Number of pages28
JournalJournal of Financial Markets
Volume47
DOIs
Publication statusPublished - Jan 2020
Externally publishedYes

Keywords

  • Price discovery
  • Stock
  • Option
  • Information share
  • Insider trading

Fingerprint Dive into the research topics of 'Price discovery in stock and options markets'. Together they form a unique fingerprint.

Cite this