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

Louis R. Piccotti and Ben Schreiber

Journal of Empirical Finance, 2015, vol. 32, issue C, 210-229

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.

Keywords: Foreign exchange market microstructure; FX options; Information share; Price discovery (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:32:y:2015:i:c:p:210-229

DOI: 10.1016/j.jempfin.2015.03.016

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