Price discovery during parallel stocks and options preopening: Information distortion and hints of manipulation

Shmuel Hauser, Haim Kedar-Levy and Orit Milo

Journal of Financial Markets, 2022, vol. 59, issue PA

Abstract: Many exchanges act to prevent manipulative orders from distorting informative price discovery during stock and options’ markets preopening. Most preopening sessions run in parallel: indicative book-based stock prices alongside traded index options, whose underlying asset is the indicative index. Lead-lag patterns between the options-implied and the indicative indexes may point to differences in informational efficiency and/or manipulated prices. With three regulatory events throughout our sample, serving as natural experiments, we explore price discovery properties in both markets. We find significant lead-lag, price reversal, and order cancellation patterns similar to those predicted by theoretical models of manipulation, together with informational inefficiencies.

Keywords: Price discovery; Manipulation; Preopening; Market efficiency (search for similar items in EconPapers)
JEL-codes: D84 G12 G13 G14 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:59:y:2022:i:pa:s1386418122000015

DOI: 10.1016/j.finmar.2022.100705

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