The Informational Role of Stock and Option Volume

This article analyzes the intraday interdependence of order flows and price movements for actively traded NYSE stocks and their Chicago Board Options Exchange (CBOE)-traded options. Stock net trade volume (buyer-initiated volume minus seller-initiated volume) has strong predictive ability for stock...

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Bibliographic Details
Published in:The Review of financial studies 2002-10, Vol.15 (4), p.1049-1075
Main Authors: Chan, Kalok, Chung, Y. Peter, Fong, Wai-Ming
Format: Article
Language:English
Subjects:
Call options
Economic theory
Economics
Finance
Inventory control
Investors
Limit orders
Options markets
Options on stocks
Prices
Revisions
Securities analysis
Securities markets
Securities trading volume
Stock exchange
Stock exchanges
Stock markets
Stock options
Stock prices
Stocks
Studies
Trade
Trade volume
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Summary:This article analyzes the intraday interdependence of order flows and price movements for actively traded NYSE stocks and their Chicago Board Options Exchange (CBOE)-traded options. Stock net trade volume (buyer-initiated volume minus seller-initiated volume) has strong predictive ability for stock and option quote revisions, but option net trade volume has no incremental predictive ability. This suggests that informed investors initiate trades in the stock market but not in the option market. On the other hand, both stock and option quote revisions have predictive ability for each other. Thus, while information in the stock market is contained in both quote revisions and trades, information in the option market is contained only in quote revisions.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/15.4.1049