How Market Prices React to Information: Evidence from Binary Options Markets

Romain Gauriot and Lionel Page

No 20200058, Working Papers from New York University Abu Dhabi, Department of Social Science

Abstract: Using a natural experiment setting on binary options markets, we compare the evolution of market prices in situations where the occurrence or not of information shocks depends on knife-edge situations and where shocks can be considered as good as random. We find that most of the time, prices react surprisingly efficiently to information shocks with no evidence of abnormal average returns. We nonetheless find evidence of under-reaction in specific situations where information shocks are large.

Pages: 78 pages
Date: 2021-10, Revised 2021-10
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