Abstract
We find that weekend, holiday and overnight trading breaks generate excessive perceived risk in the option markets, presumably due to asymmetric information, which, in turn, encourages uninformed option traders to postpone trading. This perceived risk subsides after two days accompanied by an increase in the option trading volume and the underlying index's actual price volatility. These results shed light on the informational role of index options and suggest that the theoretical models' results regarding information processing and price discovery in the presence of private information are not limited to single stocks but also apply to the market as a whole.
Original language | English |
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Pages (from-to) | 390-404 |
Number of pages | 15 |
Journal | Journal of Banking and Finance |
Volume | 58 |
DOIs | |
State | Published - 1 Sep 2015 |
Bibliographical note
Publisher Copyright:© 2015 Elsevier B.V.
Keywords
- Asymmetrical information
- D0
- D8
- G12
- G14
- Implied volatility
- Market efficiency
- Option market microstructure
- Perceived risk
- Volume of trade