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Detecting Abnormal Trading Activities in Option MarketsMarc ChesneyUniversity of Zurich - Swiss Banking Institute (ISB); Swiss Finance Institute Remo CrameriUniversity of Zurich - Swiss Banking Institute (ISB) Loriano ManciniEcole Polytechnique Fédérale de Lausanne; Swiss Finance Institute January 22, 2015 Swiss Finance Institute Research Paper No. 11-42 Abstract: We develop an econometric method to detect "abnormal trades" in option markets, i.e., trades which are not driven by liquidity motives. Abnormal trades are characterized by unusually large increments in open interest, trading volume, and option returns, and are not used for option hedging purposes. We use a multiple hypothesis testing technique to control for false discoveries in abnormal trades. We apply the method to 9.6 million of daily option prices.
Number of Pages in PDF File: 36 Keywords: Options Trades, Open Interest, False Discovery Rate, Massive dataset JEL Classification: G12, G13, G17 Date posted: January 13, 2010 ; Last revised: January 23, 2015Suggested CitationContact Information
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