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Information, Alternative Markets, and Security Price Processes: A Survey of Literature

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  • Rafiqul Bhuyan

    (University College of the cariboo, Bc, Canada)

Abstract

In this paper, we survey a wide range of theoretical and empirical papers on derivatives markets to address the information contents of trading activities in derivatives markets. Both theoretical and empirical research on options market and futures market indicate that the presence of alternative markets may be a factor for informed traders' presence in one of or in both markets to trade on their information. One group of researchers support the hypothesis that information reflects in derivatives market first and underlying stock market lags in information transmission. Another group of researchers support the hypothesis that information reflects in stock markets first and trading activities in derivatives markets are not significant. Since researchers are not in agreement in this issue, it raises a potential for further research on different activities of derivatives market.

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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0211002.

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Length: 45 pages
Date of creation: 17 Nov 2002
Date of revision:
Handle: RePEc:wpa:wuwpfi:0211002

Note: Type of Document - word; prepared on IBM PC; to print on HP/PostScript/Franciscan monk; pages: 45 ; figures: No figures. It is a survey of literature on alternative markets. No such survey exists in the current literature. But is quite useful to have one.
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Web page: http://128.118.178.162

Related research

Keywords: Open Interest; Volume; Market Efficiency; Information Traders.;

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  1. Merton, Robert C & Scholes, Myron S & Gladstein, Mathew L, 1978. "The Returns and Risk of Alternative Call Option Portfolio Investment Strategies," The Journal of Business, University of Chicago Press, vol. 51(2), pages 183-242, April.
  2. Kumar, Praveen & Seppi, Duane J, 1994. "Information and Index Arbitrage," The Journal of Business, University of Chicago Press, vol. 67(4), pages 481-509, October.
  3. Manaster, Steven & Rendleman, Richard J, Jr, 1982. " Option Prices as Predictors of Equilibrium Stock Prices," Journal of Finance, American Finance Association, vol. 37(4), pages 1043-57, September.
  4. Bhattacharya, Mihir, 1987. "Price Changes of Related Securities: The Case of Call Options and Stocks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 1-15, March.
  5. David Easley & Maureen O'Hara & P.S. Srinivas, 1998. "Option Volume and Stock Prices: Evidence on Where Informed Traders Trade," Journal of Finance, American Finance Association, vol. 53(2), pages 431-465, 04.
  6. Merton, Robert C, 1981. "On Market Timing and Investment Performance. I. An Equilibrium Theory of Value for Market Forecasts," The Journal of Business, University of Chicago Press, vol. 54(3), pages 363-406, July.
  7. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  8. Tae Park & Lorne Switzer & Robert Bedrossian, 1999. "The interactions between trading volume and volatility: evidence from the equity options markets," Applied Financial Economics, Taylor & Francis Journals, vol. 9(6), pages 627-637.
  9. Chan, Kalok, 1992. "A Further Analysis of the Lead-Lag Relationship between the Cash Market and Stock Index Futures Market," Review of Financial Studies, Society for Financial Studies, vol. 5(1), pages 123-52.
  10. Biais, Bruno & Hillion, Pierre, 1994. "Insider and Liquidity Trading in Stock and Options Markets," Review of Financial Studies, Society for Financial Studies, vol. 7(4), pages 743-80.
  11. Grossman, Sanford J, 1988. "An Analysis of the Implications for Stock and Futures Price Volatility of Program Trading and Dynamic Hedging Strategies," The Journal of Business, University of Chicago Press, vol. 61(3), pages 275-98, July.
  12. Mayhew, Stewart & Sarin, Atulya & Shastri, Kuldeep, 1995. " The Allocation of Informed Trading across Related Markets: An Analysis of the Impact of Changes in Equity-Option Margin Requirements," Journal of Finance, American Finance Association, vol. 50(5), pages 1635-53, December.
  13. Grenadier, Steven R, 1999. "Information Revelation through Option Exercise," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 95-129.
  14. Merton, Robert C, 1973. "The Relationship Between Put and Call Option Prices: Comment," Journal of Finance, American Finance Association, vol. 28(1), pages 183-84, March.
  15. Detemple, J.B. & Jorion, P., 1989. "Option Listing And Stock Returns," Papers fb-_89-13, Columbia - Graduate School of Business.
  16. Hietala, Pekka & Jokivuolle, Esa & Koskinen, Yrjö, 2000. "Informed Trading, Short Sales Constraints and Futures' Pricing," Research Discussion Papers 4/2000, Bank of Finland.
  17. Blume, Lawrence & Easley, David & O'Hara, Maureen, 1994. " Market Statistics and Technical Analysis: The Role of Volume," Journal of Finance, American Finance Association, vol. 49(1), pages 153-81, March.
  18. Chong, Yock Y & Hendry, David F, 1986. "Econometric Evaluation of Linear Macro-Economic Models," Review of Economic Studies, Wiley Blackwell, vol. 53(4), pages 671-90, August.
  19. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
  20. Chen, Nai-Fu & Cuny, Charles J & Haugen, Robert A, 1995. " Stock Volatility and the Levels of the Basis and Open Interest in Future Contracts," Journal of Finance, American Finance Association, vol. 50(1), pages 281-300, March.
  21. Jaesun Noh & Robert F. Engle & Alex Kane, 1993. "A Test of Efficiency for the S&P Index Option Market Using Variance Forecasts," NBER Working Papers 4520, National Bureau of Economic Research, Inc.
  22. Morris, Stephen & Postlewaite, Andrew & Shin, Hyun Song, 1995. "Depth of Knowledge and the Effect of Higher Order Uncertainty," Economic Theory, Springer, vol. 6(3), pages 453-67, November.
  23. Figlewski, Stephen & Webb, Gwendolyn P, 1993. " Options, Short Sales, and Market Completeness," Journal of Finance, American Finance Association, vol. 48(2), pages 761-77, June.
  24. Figlewski, Stephen, 1981. "The Informational Effects of Restrictions on Short Sales: Some Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 463-476, November.
  25. Detemple, Jerome B & Selden, Larry, 1991. "A General Equilibrium Analysis of Option and Stock Market Interactions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(2), pages 279-303, May.
  26. Anthony, Joseph H, 1988. " The Interrelation of Stock and Options Market Trading-Volume Data," Journal of Finance, American Finance Association, vol. 43(4), pages 949-64, September.
  27. Bessembinder, Hendrik & Chan, Kalok & Seguin, Paul J., 1996. "An empirical examination of information, differences of opinion, and trading activity," Journal of Financial Economics, Elsevier, vol. 40(1), pages 105-134, January.
  28. repec:fth:bfdipa:4/2000 is not listed on IDEAS
  29. Cao, H Henry, 1999. "The Effect of Derivative Assets on Information Acquisition and Price Behavior in a Rational Expectations Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 131-63.
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