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The Relationship Between Stock and Option Price Changes
Author(s) -
Diltz J. David,
Kim Suhkyong
Publication year - 1996
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1996.tb00883.x
Subject(s) - stock price , econometrics , economics , causality (physics) , stock (firearms) , ask price , financial economics , granger causality , price discovery , finance , mechanical engineering , physics , quantum mechanics , paleontology , series (stratigraphy) , engineering , biology , futures contract
This paper documents an important step in reconciling conflicting results by Manaster and Rendleman [16] and Stephan and Whaley [21] regarding price change relationships between options and their underlying stocks. Using recent advances in bi‐directional causality testing and data sources available only fairly recently, statistical tests are conducted that mitigate the nonsynchroneity and bid‐ask bias problems that may have affected the Manaster and Rendleman [16] study. Even with these adjustments, empirical results are consistent with Manaster and Rendleman [16], indicating that stock price changes adjust to lagged option price changes over two trading days. Moreover, results suggest that the causality is bi‐directional.