TY - JOUR
T1 - Price Discovery during Parallel Stocks and Options Preopening
T2 - Information Distortion and Hints of Manipulation
AU - Hauser, Shmuel
AU - Kedar-Levy, Haim
AU - Milo, Orit
N1 - Publisher Copyright:
© 2022
PY - 2022/1/18
Y1 - 2022/1/18
N2 - Many exchanges act to prevent manipulative orders from distorting informative price discovery during stock and options’ markets preopening. Most preopening sessions run in parallel: indicative book-based stock prices alongside traded index options, whose underlying asset is the indicative index. Lead-lag patterns between the options-implied and the indicative indexes may point to differences in informational efficiency and/or manipulated prices. With three regulatory events throughout our sample, serving as natural experiments, we explore price discovery properties in both markets. We find significant lead-lag, price reversal, and order cancellation patterns similar to those predicted by theoretical models of manipulation, together with informational inefficiencies.
AB - Many exchanges act to prevent manipulative orders from distorting informative price discovery during stock and options’ markets preopening. Most preopening sessions run in parallel: indicative book-based stock prices alongside traded index options, whose underlying asset is the indicative index. Lead-lag patterns between the options-implied and the indicative indexes may point to differences in informational efficiency and/or manipulated prices. With three regulatory events throughout our sample, serving as natural experiments, we explore price discovery properties in both markets. We find significant lead-lag, price reversal, and order cancellation patterns similar to those predicted by theoretical models of manipulation, together with informational inefficiencies.
KW - Manipulation
KW - Market efficiency
KW - Preopening
KW - Price discovery
UR - http://www.scopus.com/inward/record.url?scp=85123198365&partnerID=8YFLogxK
U2 - 10.1016/j.finmar.2022.100705
DO - 10.1016/j.finmar.2022.100705
M3 - Article
AN - SCOPUS:85123198365
SN - 1386-4181
VL - 59
JO - Journal of Financial Markets
JF - Journal of Financial Markets
M1 - 100705
ER -