Price Discrimination Against Retail Investors: Evidence from Mini Options

55 Pages Posted: 4 Jan 2018 Last revised: 11 May 2018

See all articles by Yubin Li

Yubin Li

Southwestern University of Finance and Economics

Chen Zhao

Rutgers University - Rutgers Business School - Newark and New Brunswick

Zhaodong Zhong

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: May 6, 2018

Abstract

This paper studies the rise and fall of “Mini” options that are especially catered to retail investors for popular but high-priced securities. Using transaction-level data, we find that transaction costs of Mini options are much higher than those of standard options and the difference cannot be fully explained by cost-related determinants. Furthermore, we find evidence of price discrimination against retail investors from analyses of price elasticities of option traders, an event-study of changes in bid-ask spreads around earnings announcements, and comparisons of trade prices paid by Mini and standard option traders for the same security at approximately the same time.

Keywords: options, retail investors, liquidity, price discrimination, earnings announcements

JEL Classification: G10, G13, G20, G24

Suggested Citation

Li, Yubin and Zhao, Chen and Zhong, Zhaodong, Price Discrimination Against Retail Investors: Evidence from Mini Options (May 6, 2018). Available at SSRN: https://ssrn.com/abstract=3094950 or http://dx.doi.org/10.2139/ssrn.3094950

Yubin Li

Southwestern University of Finance and Economics ( email )

555 Liutai Ave.
Chengdu, NJ Sichuan 611130
China
18570257828 (Phone)

Chen Zhao

Rutgers University - Rutgers Business School - Newark and New Brunswick ( email )

923A
1 Washington Park
Newark, NJ NJ 07102
United States
732-789-3686 (Phone)

Zhaodong Zhong (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Department of Finance, Rutgers Business School
100 Rockafeller Road
Piscataway, NJ 08854
United States

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