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A Characterization of the Daily and Intraday Behavior of Returns on Options

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Author Info
 Sheikh, Aamir M
Ronn, Ehud I
Abstract

The daily and intraday behavior of returns on Chicago Board Options Exchange options is examined. Option returns contain systematic patterns even after adjusting for patterns in the means and variances of the underlying assets. This is consistent with the hypothesis that informed trading in options can make the order flow in the options market informative about the value of the underlying asset, making options nonredundant. The intraday patterns in adjusted option return variances are further consistent with a model of strategic trading by informed and discretionary liquidity traders. Copyright 1994 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 49 (1994)
Issue (Month): 2 (June)
Pages: 557-79
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Handle: RePEc:bla:jfinan:v:49:y:1994:i:2:p:557-79

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  1. Robert Engle, 1999. "Modeling the Impacts of Market Activity on Bid-Ask Spreads in the Option Market," University of California at San Diego, Economics Working Paper Series 1999-05, Department of Economics, UC San Diego. [Downloadable!]
  2. Ghulam Sarwar, 2004. "The informational role of option trading volume in the S&P 500 futures options markets," Applied Financial Economics, Taylor and Francis Journals, vol. 14(16), pages 1197-1210, November. [Downloadable!] (restricted)
  3. de Jong, Cyriel & Koedijk, Kees & Schnitzlein, Charles, 2002. "Stock Market Quality in the Prescence of a Traded Option," CEPR Discussion Papers 3173, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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This page was last updated on 2008-11-26.

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