Price Discovery during Parallel Stocks and Options Preopening: Information Distortion and Hints of Manipulation

Research output: Contribution to journalArticlepeer-review

Abstract

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.

Original languageEnglish
Article number100705
JournalJournal of Financial Markets
DOIs
StateAccepted/In press - 18 Jan 2022

Keywords

  • Manipulation
  • Market efficiency
  • Preopening
  • Price discovery

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