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Trade duration, informed trading, and option moneyness

Kee H. Chung, Seongkyu (Gilbert) Park and Doojin Ryu

International Review of Economics & Finance, 2016, vol. 44, issue C, 395-411

Abstract: This study shows the relationship between the price impact of a trade and the duration between trades by extending a trade indicator microstructure model. Using the intraday transaction data from the KOSPI 200 options market, one of the most famous and actively traded derivatives markets in the world, we find that the price impact is greater when the trade duration is shorter for in-the-money (ITM) options, while the correlation is opposite for out-of-the-money (OTM) options. Our finding that fast trading indicates informed (noisy) trading in the ITM (OTM) options remains unchanged despite controlling for the effects of trade volume, market liquidity, and intraday time periods. There are indications that the different compositions of informed and uninformed traders in terms of option moneyness cause this result. We also find that the information content of trade duration becomes greater when informed trading is more concentrated, liquidity is lower, option maturities are longer, and the market is more volatile.

Keywords: Informed trading; Intraday trades; Market microstructure model; Liquidity; Option moneyness; Price impact (search for similar items in EconPapers)
JEL-codes: G10 G15 (search for similar items in EconPapers)
Date: 2016
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