The Allocation of Informed Trading across Related Markets: An Analysis of the Impact of Changes in Equity-Option Margin Requirements
AbstractThe authors examine the impact of changes in equity-option margin requirements on the liquidity of options and underlying stock markets. They find that the decrease in margin was associated with an increase in spreads and trade informativeness, and a decrease in depth for the underlying stocks. In contrast, option spreads decreased indicating a change in the relative allocation of informed traders between the two markets. When the required margin was increased, no significant change was observed in the underlying stocks but option spreads increased. Overall, the authors' results indicate that uninformed traders are more sensitive to the margin dimension of trading costs. Copyright 1995 by American Finance Association.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 50 (1995)
Issue (Month): 5 (December)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Chen, Carl R. & Diltz, J. David & Huang, Ying & Lung, Peter P., 2011. "Stock and option market divergence in the presence of noisy information," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2001-2020, August.
- Bronka Rzepkowski, 2003. "Order Flows, Delta Hedging and Exchange Rate Dynamics," Working Papers 2003-18, CEPII research center.
- Ghulam Sarwar, 2004. "The informational role of option trading volume in the S&P 500 futures options markets," Applied Financial Economics, Taylor & Francis Journals, vol. 14(16), pages 1197-1210.
- Chang, Chuang-Chang & Hsieh, Pei-Fang & Lai, Hung-Neng, 2013. "The price impact of options and futures volume in after-hours stock market trading," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 984-1007.
- Anderson, Ronald C. & Reeb, David M. & Zhang, Yuzhao & Zhao, Wanli, 2013. "The efficacy of regulatory intervention: Evidence from the distribution of informed option trading," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4337-4352.
- Podolski, Edward J. & Truong, Cameron & Veeraraghavan, Madhu, 2013. "Informed options trading prior to takeovers – Does the regulatory environment matter?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 286-305.
- Chang, Chuang-Chang & Hsieh, Pei-Fang & Tang, Chih-Wei & Wang, Yaw-Huei, 2013. "The intraday behavior of information misreaction across various categories of investors in the Taiwan options market," Journal of Financial Markets, Elsevier, vol. 16(2), pages 362-385.
- Chang, Chuang-Chang & Hsieh, Pei-Fang & Lai, Hung-Neng, 2009. "Do informed option investors predict stock returns? Evidence from the Taiwan stock exchange," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 757-764, April.
- Aragon, George O. & Spencer Martin, J., 2012. "A unique view of hedge fund derivatives usage: Safeguard or speculation?," Journal of Financial Economics, Elsevier, vol. 105(2), pages 436-456.
- Ghulam Sarwar, 2005. "The Informational Role of Option Trading Volume in Equity Index Options Markets," Review of Quantitative Finance and Accounting, Springer, vol. 24(2), pages 159-176, January.
- Lecce, Steven & Lepone, Andrew & McKenzie, Michael D. & Segara, Reuben, 2012. "The impact of naked short selling on the securities lending and equity market," Journal of Financial Markets, Elsevier, vol. 15(1), pages 81-107.
- Santa-Clara, Pedro & Saretto, Alessio, 2004. "Option Strategies: Good Deals and Margin Calls," University of California at Los Angeles, Anderson Graduate School of Management qt0499w44p, Anderson Graduate School of Management, UCLA.
- Faff, Robert & Hillier, David, 2005. "Complete markets, informed trading and equity option introductions," Journal of Banking & Finance, Elsevier, vol. 29(6), pages 1359-1384, June.
- Jokivuolle , Esa & Lanne , Markku, 2004. "Trading Nokia: The roles of the Helsinki vs the New York stock exchanges," Research Discussion Papers 26/2004, Bank of Finland.
- Alejandro Bernales & Massimo Guidolin, 2013. "The Effects of Information Asymmetries on the Success of Stock Option Listings," Working Papers 484, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Chen, Carl R. & Lung, Peter P. & Tay, Nicholas S. P., 2005. "Information flow between the stock and option markets: Where do informed traders trade?," Review of Financial Economics, Elsevier, vol. 14(1), pages 1-23.
- Fahlenbrach, Rudiger & Sandas, Patrik, 2005. "Market Frictions and Seemingly Anomalous Co-movements of Index Options and Index Futures Quotes," Working Paper Series 2005-10, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
- Rafiqul Bhuyan, 2002. "Information, Alternative Markets, and Security Price Processes: A Survey of Literature," Finance 0211002, EconWPA.
- Jun Pan & Allen Poteshman, 2004. "The Information of Option Volume for Future Stock Prices," NBER Working Papers 10925, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.