Download This PaperRetail Option Trading and Market Quality: Evidence from High-Frequency Data
48 Pages Posted: 31 Oct 2023 Last revised: 26 Feb 2024
Date Written: April 24, 2023
Abstract
Retail option trading has become an important feature of modern financial markets. Since option contracts are in zero net supply, net imbalances are delta hedged by financial intermediaries. We leverage a unique dataset that allows us to categorize option trading by trader type to show that option delta hedge re-balancing trades driven by uninformed retail traders affect market quality. This effect is seen in multiple measures of liquidity measured using high-frequency data.
Suggested Citation: Suggested Citation
O'Donovan, James and Yu, Gloria Yang and Zhang, Jinyuan, Retail Option Trading and Market Quality: Evidence from High-Frequency Data (April 24, 2023). Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2023, Available at SSRN: https://ssrn.com/abstract=4613741 or http://dx.doi.org/10.2139/ssrn.4613741
Gloria Yang Yu
Singapore Management University - Lee Kong Chian School of Business ( email )
50 Stamford Road
Singapore178899
Singapore
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