Information and the Arrival Rate of Option Trading Volume

66 Pages Posted: 25 Nov 2020 Last revised: 10 Dec 2021

See all articles by Mengyu Zhang

Mengyu Zhang

University of Kent, Kent Business School

Thanos Verousis

University of Essex

Iordanis Kalaitzoglou

Audencia Nantes School of Management

Date Written: November 3, 2021

Abstract

In this paper we investigate the interaction between liquidity and information in the options market and its impact on the pricing of the underlying asset. We model option trade duration and volume jointly, for the first time, as a natural measure of options’ trading intensity and we associate it with differential degrees of information present in option trades. We report a highly significant association between option trading intensity with contemporaneous and future underlying volatility and returns, which is robust to the presence of other information measures, market factors and structural forms.

Keywords: Options, stocks, trading volume, liquidity, information, conditional duration

JEL Classification: G12, G14

Suggested Citation

Zhang, Mengyu and Verousis, Thanos and Kalaitzoglou, Iordanis, Information and the Arrival Rate of Option Trading Volume (November 3, 2021). Available at SSRN: https://ssrn.com/abstract=3707991 or http://dx.doi.org/10.2139/ssrn.3707991

Mengyu Zhang

University of Kent, Kent Business School ( email )

CT2 7NP
United Kingdom

Thanos Verousis (Contact Author)

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Iordanis Kalaitzoglou

Audencia Nantes School of Management ( email )

8 route de la Jonelière, BP 31222
Nantes Cedex 3, Cedex 3 44312
France

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