Abstract
We investigate how decimalization impacts options market trading and the return predictability of options order imbalance (OI). Decimalization lowers transaction costs and increases noise trading. OI is better at predicting straddle returns after decimalization. Our results indicate that when informed trading does not increase, lower transaction costs enhance the predictability of OI. Our study highlights the importance of considering the diversity of market participants when evaluating the impact of liquidity on market efficiency.
Original language | English |
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Number of pages | 48 |
Publication status | Published - 18 Oct 2024 |
Event | 2024 Financial Management Association (FMA) Annual Meeting - Grapevine, United States Duration: 16 Oct 2024 → 19 Oct 2024 https://www.fmaconferences.org/Texas/TexasProgram.htm https://www.fma.org/texas |
Conference
Conference | 2024 Financial Management Association (FMA) Annual Meeting |
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Country/Territory | United States |
City | Grapevine |
Period | 16/10/24 → 19/10/24 |
Internet address |