Market depth, domestic investors and price monotonicity violations

Heejin Yang, Jaeram Lee and Doojin Ryu

Applied Economics Letters, 2018, vol. 25, issue 10, 688-692

Abstract: We re-examine the monotonicity violations of option price dynamics considering the roles of market depth and domestic investors. Violations caused by option price movements in conflict with underlying price movements tend to occur less frequently as the market depth increases, especially in the case of out-of-the-money options. In contrast, violations caused by option prices that remain sticky despite underlying price changes occur more frequently as the market depth increases. Both of these relationships are amplified by domestic investors.

Date: 2018
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DOI: 10.1080/13504851.2017.1355539

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