Author : Doojin Ryu
Publisher :
ISBN 13 :
Total Pages : 32 pages
Book Rating : 4.:/5 (13 download)
Book Synopsis Noise Traders, Mispricing, and Price Adjustments in Derivatives Markets by : Doojin Ryu
Download or read book Noise Traders, Mispricing, and Price Adjustments in Derivatives Markets written by Doojin Ryu and published by . This book was released on 2019 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines price disagreements and adjustments between actual futures prices and options-implied futures prices in an elaborate setting. We identify which market triggers each type of price disagreement and find that the market that initiates the disagreement adjusts more to eliminate the mispricing. Futures prices adjust less for options-initiated price disagreement events with out-of-the-money (OTM) options-implied prices than they do for events with at-the-money (ATM) prices. Options markets adjust more for disagreements initiated by OTM options than they do for disagreements initiated by ATM options. Adjustments in both the futures and options markets consistently suggest the information inferiority of OTM options trading. We also find that price disagreements are positively correlated with the participation of domestic investors, especially for OTM options-initiated disagreement events, implying that domestic traders are noisier and more uninformed than foreign investors are.