Trading breaks and asymmetric information: The option markets

Guy Kaplanski and Haim Levy

Journal of Banking & Finance, 2015, vol. 58, issue C, 390-404

Abstract: We find that weekend, holiday and overnight trading breaks generate excessive perceived risk in the option markets, presumably due to asymmetric information, which, in turn, encourages uninformed option traders to postpone trading. This perceived risk subsides after two days accompanied by an increase in the option trading volume and the underlying index’s actual price volatility. These results shed light on the informational role of index options and suggest that the theoretical models’ results regarding information processing and price discovery in the presence of private information are not limited to single stocks but also apply to the market as a whole.

Keywords: Perceived risk; Asymmetrical information; Option market microstructure; Implied volatility; Market efficiency; Volume of trade (search for similar items in EconPapers)
JEL-codes: D0 D8 G12 G14 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:58:y:2015:i:c:p:390-404

DOI: 10.1016/j.jbankfin.2015.05.010

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