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Option Volume and Stock Prices: Evidence on Where Informed Traders Trade
Author(s) -
Easley David,
O'Hara Maureen,
Srinivas P.S.
Publication year - 1998
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.194060
Subject(s) - equity (law) , stock (firearms) , economics , financial economics , linkage (software) , empirical evidence , information asymmetry , microeconomics , mechanical engineering , biochemistry , chemistry , philosophy , epistemology , political science , law , gene , engineering
This paper investigates the informational role of transactions volume in options markets. We develop an asymmetric information model in which informed traders may trade in option or equity markets. We show conditions under which informed traders trade options, and we investigate the implications of this for the linkage between markets. Our model predicts an important informational role for the volume of particular types of option trades. We empirically test our model's hypotheses with intraday option data. Our main empirical result is that negative and positive option volumes contain information about future stock prices.