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Information and the arrival rate of option trading volume

Mengyu Zhang, Thanos Verousis () and Iordanis Kalaitzoglou ()
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Mengyu Zhang: Kent Business School, University of Kent
Iordanis Kalaitzoglou: Audencia Business School

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Abstract: In this paper we investigate the interaction between liquidity and information in the options market and its impact on the pricing of the underlying asset. We model option trade duration and volume jointly, for the first time, as a natural measure of options' trading intensity and we associate it with differential degrees of information present in option trades. We report a highly significant association between option trading intensity with contemporaneous and future underlying volatility and returns, which is robust to the presence of other information measures, market factors and structural forms.

Keywords: Options; stocks; trading volume; liquidity; information; conditional duration (search for similar items in EconPapers)
Date: 2022
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Published in Journal of Futures Markets, inPress

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