Contract Size Changes in the Options Market: Effects on Market Efficiency and Investor Behavior

Applied Economics, forthcoming

38 Pages Posted: 18 Feb 2021 Last revised: 6 Jul 2021

See all articles by Seongkyu Gilbert Park

Seongkyu Gilbert Park

Hong Kong Polytechnic University

Doojin Ryu

Sungkyunkwan University

Date Written: June 14, 2021

Abstract

We study options market participants’ trading behavior before and after the options multiplier increases. After the options multiplier increases, the options market becomes more efficient. By analyzing the high-frequency microstructure dataset, we show that local retail and local institutional investors who trade in both options and futures markets trade more after the change in the multiplier. Our results imply that the increase in the market efficiency may be caused by fewer speculators. In addition, lottery stocks are traded more actively after the options multiplier increase.

Keywords: Account-level trade and quote data, Index options, Lottery stocks, Options multiplier, Retail investor

JEL Classification: G12, G14, G18

Suggested Citation

Park, Seongkyu and Ryu, Doojin, Contract Size Changes in the Options Market: Effects on Market Efficiency and Investor Behavior (June 14, 2021). Applied Economics, forthcoming, Available at SSRN: https://ssrn.com/abstract=3781273 or http://dx.doi.org/10.2139/ssrn.3781273

Seongkyu Park (Contact Author)

Hong Kong Polytechnic University ( email )

M850, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hung Hom, Kowloon
Hong Kong
+852 2766 4073 (Phone)

HOME PAGE: http://https://sites.google.com/site/skgilbertpark/

Doojin Ryu

Sungkyunkwan University ( email )

53 Myeongnyun-dong 3-ga Jongno-ju
Guro-gu
Seoul, 110-745
Korea, Republic of (South Korea)

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