IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Price clustering in the CAC 40 index options market

Listed author(s):
  • Gunther Capelle-Blancard

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Mo Chaudhury

    (Faculty of Management, McGill University - Aucune)

We examine in details the pattern and systematic tendencies of clustering in CAC 40 index option transaction prices during the 1997-1999 period. Similar to extant studies in many financial markets, there is evidence of strong clustering at full index points and option prices are 90% more likely to end with the digit 0 (multiples of 10) than with the digit 5. While the 1999 contract downsizing led to some reduction in clustering at full index point, the basic pattern of clustering remains intact. The pattern of clustering rejects the attraction theory, but is consistent with the notion of cost recovery by market makers. We find important drivers for CAC 40 index option price clustering, namely, the level of option premium, option volume and underlying asset volatility. Higher premium level, higher asset volatility and lower volume are seen to increase option price clustering. We also observe a U-shaped pattern of clustering on an intraday and intra-year basis. The option premium and volatility effects are consistent with a price level effect. The volatility effect also lends support to the notion of cost recovery by market makers. The volume effect likely represents a liquidity effect and is consistent with the Price Precision Hypothesis.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00265668.

as
in new window

Length:
Date of creation: Apr 2007
Publication status: Published in Applied Financial Economics, Taylor & Francis (Routledge), 2007, 17 (15), pp.1201-1210. 〈10.1080/09603100600949218〉
Handle: RePEc:hal:cesptp:halshs-00265668
DOI: 10.1080/09603100600949218
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00265668
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:halshs-00265668. 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: (CCSD)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.