Faculty of Economics and Business Administration Publications Database

Price Impacts of Option Volume

Stoll, Hans
Volume: 8
Number: 1
Pages: 69 - 87
Month: February
ISSN-Print: 1386-4181
Link External Source: Online Version
Year: 2005
Keywords: Price impacts; Options volume; Price discovery
Abstract: The price impacts of signed options volume are investigated with transactions data for options and futures on the German DAX index. We find that signed options and futures trading have a significant contemporaneous price effect, and we investigate the source of the effect. The price impact of options volume has a temporary component, which implies the presence of a liquidity effect. On the other hand, the price impact of futures volume is largely permanent, which implies an information effect. We conclude that futures traders react more quickly to information about the index and that they, not the options traders, provide price discovery in the DAX. We also investigate the relation of options and futures volume and find that signed futures volume leads signed options volume, which suggests that the options traders are the followers not the leaders in price discovery. We investigate whether options or futures volume predict price changes and conclude that they do not.