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Trading breaks and asymmetric information: The option markets

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  • Kaplanski, Guy
  • Levy, Haim

Abstract

We find that weekend, holiday and overnight trading breaks generate excessive perceived risk in the option markets, presumably due to asymmetric information, which, in turn, encourages uninformed option traders to postpone trading. This perceived risk subsides after two days accompanied by an increase in the option trading volume and the underlying index’s actual price volatility. These results shed light on the informational role of index options and suggest that the theoretical models’ results regarding information processing and price discovery in the presence of private information are not limited to single stocks but also apply to the market as a whole.

Suggested Citation

  • Kaplanski, Guy & Levy, Haim, 2015. "Trading breaks and asymmetric information: The option markets," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 390-404.
  • Handle: RePEc:eee:jbfina:v:58:y:2015:i:c:p:390-404
    DOI: 10.1016/j.jbankfin.2015.05.010
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    Cited by:

    1. Guy Kaplanski & Haim Levy, 2017. "Seasonality in Perceived Risk: A Sentiment Effect," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-21, March.

    More about this item

    Keywords

    Perceived risk; Asymmetrical information; Option market microstructure; Implied volatility; Market efficiency; Volume of trade;

    JEL classification:

    • D0 - Microeconomics - - General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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