Margin Rules, Informed Trading in Derivatives, and Price Dynamics
We analyze the impact of option trading and margin rules on the behavior of informed traders and on the microstructure of stock and option markets. In the absence of binding margin requirements, the introduction of an options market causes informed traders to exhibit a relative trading bias towards the stock because of its greater information sensitivity. In turn, this widens the stock's bid-ask spread. But when informed traders are subject to margin requirements, their bias towards the stock is enhanced or mitigated depending on the leverage provided by the option relative to the stock, leading to wider or narrower stock bid-ask spreads. The introduction of option trading, with or without margin requirements, unambiguously improves the informational efficiency of stock prices. Margin rules improve market efficiency when stock and option margins are sufficiently large or small but not when they are of moderate size
Year of publication: |
[2004]
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Authors: | John, Kose |
Other Persons: | Koticha, Apoorva (contributor) ; Subrahmanyam, Marti G. (contributor) ; Narayanan, Ranga (contributor) |
Publisher: |
[2004]: [S.l.] : SSRN |
Saved in:
freely available
Extent: | 1 Online-Ressource (33 p) |
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Type of publication: | Book / Working Paper |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments March 2003 erstellt |
Other identifiers: | 10.2139/ssrn.424981 [DOI] |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012738961
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