Stock market quality in the presence of a traded option

C. De Jong, K.G. Koedijk, C.R. Schnitzlein

Research output: Contribution to JournalArticleAcademicpeer-review


We use an economic experiment to examine the implications of asymmetric information for linkages between a stock and a traded option. We find the presence of the option splits price discovery across markets and changes the process by which conditional expectations are updated. The time series properties of the stock price depend directly on the intrinsic value of the option: when the intrinsic value of the option is positive, informational efficiency is higher in the market for the stock and volatility is lower. We provide evidence that the introduction of an option improves market quality in the underlying asset. © 2006 by The University of Chicago. All rights reserved.
Original languageEnglish
Pages (from-to)2243-2274
JournalJournal of Business
Issue number4
Publication statusPublished - Jul 2006
Externally publishedYes

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