How Option Markets Affect Price Discovery on the Spot Markets: A Survey of the Empirical Literature and Synthesis

Afef ANSI, Olfa BEN OUDA

Abstract


The aim of this paper is to survey a wide range of empirical papers on option markets to address the extent to which option markets affect price discovery on the spot market. The theoretical prediction that informed traders should sometimes trade in the option market has been examined empirically by several authors. The existing empirical evidence for such a view, however, is mixed. One group of researchers support the hypothesis that information reflects in option market first and find a significant lead for the option market. Another group of researchers support the hypothesis that information reflects in stock markets first and trading activities in option markets are not significant. Since there is no consensus among the empirical studies on this issue, it leaves us with some open theoretical and empirical issues.

Full Text: PDF DOI: 10.5539/ijbm.v4n8p155

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Business and Management   ISSN 1833-3850 (Print)   ISSN 1833-8119 (Online)

Copyright © Canadian Center of Science and Education

To make sure that you can receive messages from us, please add the 'ccsenet.org' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.