Information Shares of Two Parallel Currency Options Markets: Trading Costs versus Transparency/Tradability

47 Pages Posted: 16 Sep 2014 Last revised: 18 Jun 2015

See all articles by Louis R. Piccotti

Louis R. Piccotti

Oklahoma State University - Stillwater - Spears School of Business

Ben Z. Schreiber

Bank of Israel; Bar Ilan University

Date Written: February 10, 2015

Abstract

This paper studies whether trading costs or transparency/tradability are more important to price discovery using a unique dataset of currency options that trade simultaneously in two parallel markets. The Over-The-Counter (OTC) market is characterized by sophisticated investors, low trading costs, and low transparency/tradability compared to the Tel-Aviv Stock Exchange (TASE). Pricing errors are much larger on the TASE and the information share of the OTC market is significantly larger than that of the TASE by various information share measures, showing that trading costs and trader type have a first-order effect on price discovery while transparency/tradability have a second-order effect.

Keywords: Foreign exchange market microstructure, FX options, Information share, Price discovery

JEL Classification: G14, G15

Suggested Citation

Piccotti, Louis R. and Schreiber, Ben Z., Information Shares of Two Parallel Currency Options Markets: Trading Costs versus Transparency/Tradability (February 10, 2015). Piccotti, Louis R. and Schreiber, Ben Z. (2015). Information shares of two parallel currency options markets: trading costs versus transparency/tradability, Journal of Empirical Finance 32, 210-229. Available at SSRN: https://ssrn.com/abstract=2496519 or http://dx.doi.org/10.2139/ssrn.2496519

Louis R. Piccotti (Contact Author)

Oklahoma State University - Stillwater - Spears School of Business ( email )

460 Business
Stillwater, OK 74078-0555
United States

Ben Z. Schreiber

Bank of Israel ( email )

P.O. Box 780
Jerusalem 91007
Israel
972-2-6552595 (Phone)
972-2-6512026 (Fax)

Bar Ilan University ( email )

Ramat Gan, 55000
Israel

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