← Search

Journal of Finance Vol. 49 No. 2 1994

A Characterization of the Daily and Intraday Behavior of Returns on Options

Aamir M. Sheikh; Ehud I. Ronn1

1 Sheikh is from Indiana University. Ronn is from the University of Texas at Austin. The authors acknowledge the helpful comments and suggestions of Kerry Back, Robert Bellick, Phelim Boyle, Mahesh Maheswaran, Mark Rubinstein, Guofu Zhou,

Abstract

The daily and intraday behavior of returns on Chicago Board Options Exchange options is examined. Option returns contain systematic patterns even after adjusting for patterns in the means and variances of the underlying assets. This is consistent with the hypothesis that informed trading in options can make the order flow in the options market informative about the value of the underlying asset, making options nonredundant. The intraday patterns in adjusted option return variances are further consistent with a model of strategic trading by informed and discretionary liquidity traders.

DOI
10.1111/j.1540-6261.1994.tb05152.x
Volume
49
Issue
2
Pages
557-579
Language
en
Sources
crossref openalex

Cite