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Volatility Discovery Across Stock Limit Order Book and Options Markets

Qin Wang

Journal of Futures Markets, 2014, vol. 34, issue 10, 934-956

Abstract: Foucault [Journal of Financial Markets, 2, 99–134, 1999] provides a theoretical basis for how stock price volatility influences the aggressiveness of limit order traders. I investigate volatility discovery across stock limit order book and options markets using a broad panel of NYSE‐listed stocks from November 2007 to January 2008 and find strong evidence that, as predicted, the aggressiveness of the stock limit order book and option volatility trading Granger‐cause each other. Further, I find that the aggressiveness of the stock limit order book and option volatility trading are inversely related, which is both statistically and economically significant. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 34:934–956, 2014

Date: 2014
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Handle: RePEc:wly:jfutmk:v:34:y:2014:i:10:p:934-956