Option Market Characteristics and Price Monotonicity Violations

Heejin Yang, Hyung‐Suk Choi and Doojin Ryu

Journal of Futures Markets, 2017, vol. 37, issue 5, 473-498

Abstract: This study reexamines whether option price monotonicity properties hold in a liquid market with little market friction and considers the validity of the monotonicity properties in light of option market characteristics. We confirm that option prices do not monotonically correlate with underlying spot prices and that call and put prices often increase or decrease together, indicating that the monotonicity properties are not consistent with the observed option price dynamics. The violations of monotonicity properties are associated with not only market microstructure effects, trade sizes, and option leverage but also other market characteristics such as trade direction, individual investor demand, foreign investor trading, and market volatility. Violation occurrences tend to be clustered, and their relationship with option market characteristics has not been affected by the recent market reform. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:473–498, 2017

Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
http://hdl.handle.net/

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:37:y:2017:i:5:p:473-498

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().