Stealth Trading in Options Markets

Anand, Amber; Chakravarty, Sugato

doi:10.1017/s0022109000002234

Cited by 128 publications

(85 citation statements)

References 35 publications

(49 reference statements)

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“…Chakravarty (2001) and Anand and Chakravarty (2005) empirically investigate the effect of "stealth trading" (Barclay and Warner, 1993) and finds that medium sized trades have the highest price impact. The relationship between mean trade size of a market participant and his order flow's price impact in a limit order book therefore is a priori ambiguous.…”

Section: Literaturementioning

confidence: 99%

Whose trades convey information? Evidence from a cross-section of traders

Menkhoff

Schmeling

2010

Journal of Financial Markets

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Section: Literaturementioning

confidence: 99%

Whose trades convey information? Evidence from a cross-section of traders

Menkhoff

Schmeling

2010

Journal of Financial Markets

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“…In order to reduce their price impact and so to lower their trading costs, informed investors split up large trades. If this applies here as well, then medium-sized trades have a larger price impact than small or large trades (evidence in Anand andChakravarty, 2007, for options, Chakravarty, 2001, for equities, and in Menkhoff and Schmeling, 2010, for foreign exchange).…”

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confidence: 91%

Does the “Bund” dominate price discovery in Euro bond futures? Examining information shares

Fricke

Menkhoff

2011

Journal of Banking & Finance

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This paper examines the relative information shares of the Bund, i.e. the ten-year Euro bond future contract on German sovereign debt, versus two futures with shorter maturity. We find that the Bund is most important but does not dominate price discovery. The other contracts also have relevant -and at many days even higher -information shares. In examining determinants of information shares, we add order flow measures to market state variables and macroeconomic news. More order flow in a contract consistently increases this contract's information share.JEL-Classification: G 14 (information efficiency), G 13 (futures pricing), C 32 (time-series) Keywords:Bond futures, information shares, price discovery, order flow, macroeconomic news May 19, 2010 We thank participants at the Christoph Fricke, Lukas Menkhoff; Leibniz Universität Hannover, Department of Economics, Königsworther Platz 1, D-30167 Hannover, Germany; fricke@gif.uni-hannover. de, menkhoff@gif.uni-hannover.de; tel.: +49-511-762-4552, fax: +49-511-762-4796. 2 Does the "Bund" dominate price discovery in Euro bond futures? Examining information shares 1 IntroductionThe so-called "Bund" future contract is often regarded as the single most important asset in the Euro bond markets. The Bund is a standardized contract on German sovereign bonds with ten-year maturity. Due to its benchmark status the trading of this contract is expected to reflect the flow of news into this market more accurately than other assets. According to this view, the Bund would dominate price discovery in the Euro bond markets, i.e. the formation of interest rates. However, price discovery can occur over the whole yield curve and, for example, some news may be more important at shorter interest rates than ten years.Therefore, we examine the relative weight of the Bund future in price discovery versus two other liquid Euro bond future contracts. We find that the Bund is important indeed, but that itis not dominating at all.The Bund future derives its benchmark status for European bond markets mainly from three facts (see Menkveld et al., 2004). First, Germany is the largest economy in the Euro area and its federal debt has the lowest risk spread. Second, future markets seem to be often more important than spot markets in price discovery, in particular if they are more liquid as it is the case here (see Covrig et al., 2004, for equities, Mizrach and Neely, 2008, for bonds). Third, among future contracts on German sovereign debt the Bund has about twice the trading volume than contracts on shorter maturities. Overall, there are good reasons to assume a leading role for the Bund in the process of discovering the interest rate level. There is indeed empirical evidence that German debt has a dominating role in the Euro area and we know that the Bund future dominates the ten-year bond (Upper and Werner, 2007, Schlusche, 2009 Our research addresses exactly this issue: which contract (which market) is relatively most important in incorporating permanent price changes first, i.e. ...

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“…Little is known about this issue in option markets. The only study so far that examines the direct link between the two variables is Anand & Chakravarty (2007) on equity options markets. No study has investigated how informed investors strategically choose their trade size in index option markets.…”

Section: Introductionmentioning

confidence: 99%

Information Effects of Trade Size and Trade Direction: Evidence from the KOSPI 200 Index Options Market*

Ahn

Kang

Ryu

2010

Asia-Pac J of Fin Stud

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In the present study, we examine two important issues related to the information content of a trade in option markets: (i) whether trade size is related to information content; and (ii) whether buy and sell transactions carry different information content. Our analysis is based on comprehensive market microstructure data on the KOSPI 200 options, the single most actively traded derivative securities in the world. We use two structural models modified from the Madhavan et al. [Review of Financial Studies 10 (1997) 1035-1064] model, the size-dependent model (SDM), and the dummy variable model (DVM). The SDM incorporates trade size in the model to estimate the magnitude of the information content of a trade. The DVM separately estimates information contents for buyer-and seller-initiated trades using a dummy variable. Our SDM analysis reveals that large trades are in general more informative than small trades. The results from the DVM analysis indicate that buyer-initiated trades generally have greater information content than seller-initiated trades. A further analysis using investor-type information shows that the asymmetry in information content between buy and sell trades is mostly attributable to the orders submitted by foreign and domestic institutional investors.

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Stealth Trading in Options Markets

Cited by 128 publications

References 35 publications

Whose trades convey information? Evidence from a cross-section of traders

Whose trades convey information? Evidence from a cross-section of traders

Does the “Bund” dominate price discovery in Euro bond futures? Examining information shares

Information Effects of Trade Size and Trade Direction: Evidence from the KOSPI 200 Index Options Market*

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