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This paper examines the impact of central clearing on the credit default swap (CDS) market using a sample of voluntarily cleared single-name contracts. Consistent with central clearing reducing counterparty risk, CDS spreads increase around the commencement of central clearing and are lower than...
Persistent link: https://www.econbiz.de/10010752915
This paper presents a robust new finding that delta-hedged equity option return decreases monotonically with an … is distinct from existing anomalies in the stock market or volatility-related option mispricing. It is consistent with … strength of the negative relation between delta-hedged option return and idiosyncratic volatility by about 40%. …
Persistent link: https://www.econbiz.de/10010693362
Regulatory restrictions and market frictions can constrain the aggregate quantity of long and short positions in a security. When these constraints bind, we refer to the security as scarce, and its price becomes distorted relative to its value in a frictionless market. We show that an otherwise...
Persistent link: https://www.econbiz.de/10010743552
After executing option orders, options market makers turn to the stock market to hedge away the underlying stock … exposure. As a result, the stock exposure imbalance in option transactions translates into an imbalance in stock transactions …. This paper decomposes the total stock order imbalance into an imbalance induced by option transactions and an imbalance …
Persistent link: https://www.econbiz.de/10010743556
We show that Standard & Poor's (S&P) 500 futures are pulled toward the at-the-money strike price on days when serial options on the S&P 500 futures expire (pinning) and are pushed away from the cost-of-carry adjusted at-the-money strike price right before the expiration of options on the S&P 500...
Persistent link: https://www.econbiz.de/10010587978
We examine the information content of option and equity volumes when trade direction is unobserved. In a multimarket … asymmetric information model, equity short-sale costs result in a negative relation between relative option volume and future … firm value. In our empirical tests, firms in the lowest decile of the option to stock volume ratio (O/S) outperform the …
Persistent link: https://www.econbiz.de/10010593832
We develop a discrete-time stochastic volatility option pricing model exploiting the information contained in the … Poor's 500 index options illustrates that our model outperforms competing time-varying and stochastic volatility option … pricing models. …
Persistent link: https://www.econbiz.de/10010616814
We document that short-horizon pricing discrepancies across firms' equity and credit markets are common and that an …
Persistent link: https://www.econbiz.de/10010617606
Economists have traditionally viewed futures prices as fully informative about future economic activity and asset prices. We argue that open interest could be more informative than futures prices in the presence of hedging demand and limited risk absorption capacity in futures markets. We find...
Persistent link: https://www.econbiz.de/10010617611
We study the determination of liquidity provision in the single-name credit default swap (CDS) market as measured by the number of distinct dealers providing quotes. We find that liquidity is concentrated among large obligors and those near the investment-grade/speculative-grade cutoff....
Persistent link: https://www.econbiz.de/10010571645