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Option Volume and Stock Prices: Evidence on Where Informed Traders Trade


David Easley


Cornell University - Department of Economics

Maureen O'Hara


Cornell University - Samuel Curtis Johnson Graduate School of Management

P. S. Srinivas


World Bank

Journal of Finance, Vol. 53, No. 2, April 1998

Abstract:     
This paper investigates the informational role of transactions volume in options markets. We develop an asymmetric information model in which informed traders may trade in option or equity markets. We show conditions under which informed traders trade options, and we investigate the implications of this for the linkage between markets. Our model predicts an important informational role for the volume of particular types of option trades. We empirically test our model's hypotheses with intra-day option data. Our main empirical result is that negative and positive option volumes contain information about future stock prices.

JEL Classification: G13, G14

Accepted Paper Series


Date posted: July 2, 1998  

Suggested Citation

Easley, David, O'Hara, Maureen and Srinivas, P. S., Option Volume and Stock Prices: Evidence on Where Informed Traders Trade. Journal of Finance, Vol. 53, No. 2, April 1998. Available at SSRN: http://ssrn.com/abstract=98724

Contact Information

David Easley
Cornell University - Department of Economics ( email )
414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6283 (Phone)
607-255-2818 (Fax)
Maureen O'Hara (Contact Author)
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)
P. S. Srinivas
World Bank
1818 H Street, N.W.
Washington, DC 20433
United States
Feedback to SSRN (Beta)


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