An Analysis of the Implications for Stock and Futures Price Volatility of Program Trading and Dynamic Hedging Strategies
The notion that a real security is redundant when it can be synthesized by a dynamic trading strategy ignores the informati onal role of real securities markets. Portfolio insurance uses a dyna mic strategy to synthesize a European put. The absence of trading in an appropriate real put option prevents the transmittal of informatio n to market participants about the future price volatility associated with current dynamic hedging strategies. Less information is transmi tted to potential liquidity providers. It will, therefore, be more di fficult for the market to absorb the trades implied by the dynamic he dging strategies, and the stocks' future price volatility will rise. Copyright 1988 by the University of Chicago.
If 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.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Benninga, Simon & Blume, Marshall E, 1985. " On the Optimality of Portfolio Insurance," Journal of Finance, American Finance Association, vol. 40(5), pages 1341-1352, December.
- Simon Benninga & Marshall Blume, "undated". "On the Optimality of Portfolio Insurance," Rodney L. White Center for Financial Research Working Papers 5-85, Wharton School Rodney L. White Center for Financial Research.
- Sanford J. Grossman, 1977. "The Existence of Futures Markets, Noisy Rational Expectations and Informational Externalities," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 431-449.
- Simon Benninga & Marshall Blume, "undated". "On the Optimality of Portfolio Insurance," Rodney L. White Center for Financial Research Working Papers 05-85, Wharton School Rodney L. White Center for Financial Research.
When requesting a correction, please mention this item's handle: RePEc:ucp:jnlbus:v:61:y:1988:i:3:p:275-98. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
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.