How Exogenous Liquidity Affects Information Efficiency in the Options Market

Sophie Ni, Li Wang*

*Corresponding author for this work

Research output: Contribution to conferenceConference paperpeer-review

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 languageEnglish
Number of pages48
Publication statusPublished - 18 Oct 2024
Event2024 Financial Management Association (FMA) Annual Meeting - Grapevine, United States
Duration: 16 Oct 202419 Oct 2024
https://www.fmaconferences.org/Texas/TexasProgram.htm
https://www.fma.org/texas

Conference

Conference2024 Financial Management Association (FMA) Annual Meeting
Country/TerritoryUnited States
CityGrapevine
Period16/10/2419/10/24
Internet address

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