Information and the Arrival Rate of Option Trading Volume
66 Pages Posted: 25 Nov 2020 Last revised: 10 Dec 2021
Date Written: November 3, 2021
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: Suggested Citation