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Intraday Price Change and Trading Volume Relations in the Stock and Stock Option Markets

Authors

  • JENS A. STEPHAN,

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    • The Fuqua School of Business, Duke University. This research was supported by the Futures and Options Research Center, Duke University, and Unisys Corporation. The Chicago Board Options Exchange generously supplied the stock option data used in this study. An earlier version of this paper was prepared for the Second International Conference in Finance at HEC-ISA, Jouy-En-Josas, France. Very capable computational assistance was provided by John Sprow. The final version of this paper benefited from the helpful comments of Terry Brookshire, Campbell R. Harvey, Michael L. Hemler, an anonymous referee, and the editor, René M. Stulz.

  • ROBERT E. WHALEY

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    • The Fuqua School of Business, Duke University. This research was supported by the Futures and Options Research Center, Duke University, and Unisys Corporation. The Chicago Board Options Exchange generously supplied the stock option data used in this study. An earlier version of this paper was prepared for the Second International Conference in Finance at HEC-ISA, Jouy-En-Josas, France. Very capable computational assistance was provided by John Sprow. The final version of this paper benefited from the helpful comments of Terry Brookshire, Campbell R. Harvey, Michael L. Hemler, an anonymous referee, and the editor, René M. Stulz.


ABSTRACT

This study investigates intraday relations between price changes and trading volume of options and stocks for a sample of firms whose options traded on the CBOE during the first quarter of 1986. After purging the price change series of the effects of bid/ask spreads, multivariate time-series analysis is used to estimate the lead/lag relation between the price changes in the option and stock markets. The results indicate that price changes in the stock market lead the option market by as much as fifteen minutes. The analysis of trading volume indicates that the stock market lead may be even longer.

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