Price discovery in stock and options markets

Vinay Patel*, Tālis J. Putniņš, David Michayluk, Sean Foley

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

Using new empirical measures of information leadership, we find that the role of options in price discovery is up to five times larger than previously thought. Approximately one-quarter of new information is reflected in options prices before being transmitted to stock prices, with options playing a more important role in price discovery around information events. Using unique data on traders prosecuted for insider trading, we find that they often choose to trade in options, attracted by their leverage, and when they do the options share of price discovery is higher. Our results help interpret conflicting findings in the existing literature.

Original languageEnglish
Article number100524
Number of pages28
JournalJournal of Financial Markets
Early online date26 Dec 2019
Publication statusE-pub ahead of print - 26 Dec 2019

Keywords / Materials (for Non-textual outputs)

  • price discovery
  • stock
  • option
  • information share
  • insider trading


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