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Informed trading under different market conditions and moneyness: Evidence from TXO options

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  • Chan, Kam C.
  • Chang, Yuanchen
  • Lung, Peter P.
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    Abstract

    We examine the informational role of options across exercise prices under different market conditions. We analyze the influence of options' leverage effect, and market cycles on the cause-effect relation between stock and options markets based on an emerging options market--the Taiwan stock index options market. When aggregating market data irrespective of market cycles and options moneyness, we find that the equity market leads the options market. However, as we control options' moneyness and market cycles, we find that out-of-the-money options lead the stock market by up to 90Â min with more pronounced results in downtrends and periods of political tension. Our findings suggest that the informational role of options is interacted with leverage effect and market conditions.

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    Bibliographic Info

    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 17 (2009)
    Issue (Month): 2 (April)
    Pages: 189-208

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    Handle: RePEc:eee:pacfin:v:17:y:2009:i:2:p:189-208

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    Web page: http://www.elsevier.com/locate/pacfin

    Related research

    Keywords: Information flow Options Emerging markets;

    References

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    Cited by:
    1. 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.
    2. Joyce Hsieh & Chien-Chung Nieh, 2010. "An overview of Asian equity markets," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 24(2), pages 19-51, November.
    3. Wu, Wei-Shao & Liu, Yu-Jane & Lee, Yi-Tsung & Fok, Robert C.W., 2014. "Hedging costs, liquidity, and inventory management: The evidence from option market makers," Journal of Financial Markets, Elsevier, vol. 18(C), pages 25-48.

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