Stock Market Quality in the Presence of a Traded Option

Cyriel de Jong, Kees G. Koedijk and Charles R. Schnitzlein
Additional contact information
Cyriel de Jong: RSM Erasmus University
Kees G. Koedijk: RSM Erasmus University and CEPR
Charles R. Schnitzlein: College of Business Administration, University of Central Florida

The Journal of Business, 2006, vol. 79, issue 4, pages 2243-2274

Abstract: We use an economic experiment to examine the implications of asymmetric information for linkages between a stock and a traded option. We find the presence of the option splits price discovery across markets and changes the process by which conditional expectations are updated. The time series properties of the stock price depend directly on the intrinsic value of the option: when the intrinsic value of the option is positive, informational efficiency is higher in the market for the stock and volatility is lower. We provide evidence that the introduction of an option improves market quality in the underlying asset.

Date: 2006
References: Add references at CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.journals.uchicago.edu/cgi-bin/resolve?JB790419 main text (application/pdf)
Access to the online full text or PDF requires a subscription.

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: http://EconPapers.repec.org/RePEc:ucp:jnlbus:v:79:y:2006:i:4:p:2243-2242

Access Statistics for this article

More articles in The Journal of Business from University of Chicago Press
Series data maintained by Journals Division ().