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Exercising of Options in the Australian Options Market

Author

Listed:
  • R. L. Brown

    (Monash University)

  • K. A. Rainbow

    (Australian United Corporation, Melbourne. We are indebted to Mr. P.C. Small and his staff at the Options Clearing House (Sydney) for providing essential unpublished data and to R.J. Longair for helpful comments.)

Abstract

Conditions defining rational and irrational exercising of options are presented and explained. These conditions are tested empirically by studying actual exercises in the Australian Options Market. It is found that two weak conditions are confirmed but the evidence on two strong conditions is mixed. Although most exercising appears to be consistent with the strong conditions, a significant number of exercises appear to violate them. Factors explaining these violations are not examined in detail, but it is suggested that transaction costs may be important.

Suggested Citation

  • R. L. Brown & K. A. Rainbow, 1981. "Exercising of Options in the Australian Options Market," Australian Journal of Management, Australian School of Business, vol. 6(1), pages 1-22, June.
    • Handle: RePEc:sae:ausman:v:6:y:1981:i:1:p:1-22
    DOI: 10.1177/031289628100600101
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    References listed on IDEAS

    as
    1. Latane, Henry A & Rendleman, Richard J, Jr, 1976. "Standard Deviations of Stock Price Ratios Implied in Option Prices," Journal of Finance, American Finance Association, vol. 31(2), pages 369-381, May.
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    Cited by:

    1. Grace Phang & Rob Brown, 2011. "Rational early exercise of call options: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 51(3), pages 732-744, September.
    2. Pinder, Sean, 2003. "An empirical examination of the impact of market microstructure changes on the determinants of option bid-ask spreads," International Review of Financial Analysis, Elsevier, vol. 12(5), pages 563-577.

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